Anyone who bought bonds in the last few years is staring at a nice potential gain. If the bonds were equity, the sound logic would be “to take some money off the table.” But bonds pay interest (the rent, and the food) — the reason you bought them in the first place. Hence selling them makes little sense.
In recent years bonds have boomed because of the publicity over “The Lost Decade in Equities.” (From 1999 to 2009, the S&P lost ground.)
Below is a chart showing flows into bonds. If this equity rally continues, fund flow could reverse and pump more money into equities, reinforcing our present little boom.
Scott Minerd, chief investorment officer of Guggenheim Parters has just written a long piece, The Urban Legend of the Bond Bubble. His conclusion:
My purpose in writing this piece was to debunk the urban legend of a bond bubble. I believe stocks are cheap in the current environment and should provide annualized returns in the neighborhood of 7 to 10 percent over the next decade. When Treasuries were at 4.0 percent in April, I advocated adding to positions. Today, at 2.5 percent, I don’t recommend loading up on Treasuries, even though I believe rates will continue to fall to 2.0 percent or possibly lower.
In general, the main opportunity for investors today is to take advantage of the rising tide of liquidity that will lift asset prices in stocks, bonds, and commodities and will not be immediately inflationary.
His words have implications: Don’t buy the TBT. Be wary of getting into bonds today. Yields are too low — unless you fluke a cheap bond. Equities with a decent (and rising) dividend yield look more interesting. I added a couple of interesting names on the chart on the right, including Netflix, which is being pushed up by a small float and lots of shorts having to cover. It’s way overpriced. Keep your stops ultra-tight.
You can read Scott Minerd’s entire piece. Click here.
How bonds to to be ridiculously expensive compared to stocks. From Business Insider:
Here are Business Insider’s words:
Jeremy Grantham said in his latest quarterly lettter that bonds are now overvalued relative to stocks. He generally prefers U.S. quality companies over bonds. Here’s a potential reason why markets have reached this point.
Despite the recent stock market rally, whereby September was the best month in seven decades, U.S. domestic stock funds are still bleeding investor assets.
Latest fund flow data from the Investment Company Institute (ICI) shows how U.S. stock funds’ flows have continued to be negative, even during the first two weeks of October, as they have been for most of the year. Fund flows for U.S. equity funds were net-negative in 2008, 2009, and now have been the same for 2010 thus far.
Below we show the cumulative effect of this, since the beginning of 2008. Cumulative fund flows over the period equaled -$245.8 billion based on ICI data, as shown in red.
Meanwhile, fund flows into bond funds have continued to be positive this year. Cumulative flows for bond funds since the beginning fo 2008 have equaled +$632.15 billion, as shown in gray.
So despite any sense in the market right now that investors are starting to get too bullish, ICI data at least paints a different picture — Investors as a whole continue to pare back their equity mutual funds and deploy additional money into bond funds. More of the same pessimism towards stocks and love for bonds.
Just note that the data below doesn’t include ETFs, where fund flows for U.S. domestic stock ETFs went positive recently.
So maybe we’ll soon see the fund flows go positive in a meaningful way for domestic stock mutual funds, but it doesn’t appear to have happened yet.
Why Anne Newton’s father’s email suddenly stopped working. A true story. From Anne:
“I talked to my dad last night. He dropped his phone in the toilet. He had to change his email address.”
BlackBerry fatal attraction.
He’s 93 and plays tennis three times a week. Taken yesterday in the locker room with my trusty iPhone 4.
Modern weddings.
Jacob, age 92, and Rebecca, age 89, are all excited about their decision to get married. They go for a stroll to discuss the wedding, and on the way they pass a drugstore. Jacob suggests they go in.
Jacob addresses the man behind the counter: “Are you the owner?”
The pharmacist answers, “Yes.”
Jacob: “We’re about to get married. Do you sell heart medication?”
Pharmacist: “Of course we do.”
Jacob: “How about medicine for circulation?”
Pharmacist: “All kinds”
Jacob: “Medicine for rheumatism?”
Pharmacist: “Definitely.”
Jacob: “How about suppositories?”
Pharmacist: “You bet!”
Jacob: “Medicine for memory problems, arthritis, and Alzheimer’s?”
Pharmacist: “Yes, a large variety; the works.”
Jacob: “What about vitamins, sleeping pills, Geritol, antidotes for Parkinson’s disease?”
Pharmacist: “Absolutely.”
Jacob: “Everything for heartburn and indigestion?”
Pharmacist: “We sure do.”
Jacob: “You sell wheelchairs and walkers and canes?”
Pharmacist: “All speeds and sizes.”
Jacob: “Adult diapers?”
Pharmacist: “Sure.”
Jacob: “We’d like to use this store as our Bridal Registry.”
Harry Newton who is staggered at how beautiful the weather has recently been in New York City. It was 68 in Columbus Circle at 10 PM last night. The fountains were on. Lovers were strolling. People were friendly, happy and relaxed. Most un-New York. Amazing:
Sure, people in Manhattan seem happy — just like those in and around DC are — why wouldn't they, they were and are the beneficiaries of the massive wealth transfer that has occurred. I get a different vibe, … in the few areas of So Cal that I'm in and around. When you and everyone you know is underwater on their homes (by tens or hundreds of thousands) … it tends to shape your mood towards everything else.
Hi Harry-we were in NYC over the Columbus day weekend and had a great time-stayed on the UWS and the weather was perfect-I rode a bike for two loops on Saturday thru Central, we went to the Guggenheim and also saw 2 B-way shows. We ate breakfast at the Utopia and the french toast was the best! On Friday nite we went to Whole Foods in Columbus Circle and the place was packed like they were giving it away-NOT. Times square was very high energy and exciting. People should not fear going.
You understand that the ONLY thing anyone outside of Manhattan hears about Manhattan is BEDBUGS… ?? Bedbugs in the UN was the latest. Was contemplating a trip, but who would go there to be attacked by midges? The mainstream media is not doing your city any favors!
It's a problem. the bedbugs and the mainstream media. Better it focuses on bedbugs than on politics.