Market Currents
The "Death of Equities?" John Authers and Kate Burgess explore the end of more than a...
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Thursday, May 24, 2012, 11:44 AM ETThe "Death of Equities?" John Authers and Kate Burgess explore the end of more than a half-century "passion for equities," as institutions shed stock exposure for fixed income. The authors suggest stocks' relative cheapness is more about low bond yields, and unless said yields are going to go negative, any tailwind to equity prices from fixed income is about used up. (see also)
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Take a look at the following chart: http://bit.ly/KtEwnz
Now, does anybody think that an investment in Treasuries looks appealing at current yields?
When rates begin to rise --and, they will rise again, just as sure as the sun comes up each day -- then, we're going to see a dramatic erosion in bond principal values, and all those folks who thought they were "safe" by buying Treasuries with nearly no yield are going to abandon them. And, lots of that money will find its way back to equities, which have been stagnant and mostly eschewed, as Treasuries have soared in the last few years, not the subject of any "passion," as imagined by the authors. During this time, however, corporate performance has continued to increase, yet prices have mostly crabbed sideways, making for ever lower P/E's.
Bonds have only looked excessively appealing because of fear and misconceived safety. Nobody can maintain or build a future existence on 2% yields over any length of time. And, when underlying bond prices start to erode, indicating that bonds have risk, too, then, people will realize it's better to have greater returns, if there's risk exposure on both sides of the fence, which there is and always has been.
To get an idea how substantially better the returns in equities are versus bonds, one only need consult the following chart:
http://bit.ly/w4jRpw~adamodar/New_Home_Pag...
It's interesting to note that, even while bonds have enjoyed the last 30-year bull market, equities during that time enjoyed returns that were over 30% higher than bonds.
(SA fouling up the link...Sorry; cannot transpose correctly)
Enter following three lines in browser on one line with no spaces and after http:
pages.stern.nyu.edu/
~adamodar/New_Home_Page/
datafile/histret.html
It is the only possible way to protect savings against inflation, and for those who believe inflation is dead, then look back in time and see what $1 would have bought, 10,20,50, and 100 years ago.