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Tom Armistead
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I am a retired accountant, having spent the early years of my career in the insurance industry and the later part in the field of accounting. My insurance experience has given me the willingness to accept investment risk if I feel the return justifies it; also, an interest in applying risk... More
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Tom Armistead's Instablog
  • Ten Year Treasuries As A Fear Guage 2 comments
    Feb 5, 2014 8:15 AM | about stocks: SPY, JNJ, PG, KO

    I've been watching the interplay of the earnings yield on the S&P 500 (NYSEARCA:SPY) and the interest rate on Ten Year Treasuries with interest, not to mention wonder and awe. The question comes up, what drives it?

    The conventional wisdom is: QE drives it. Just as soon as the Fed gives up on their program of financial repression the Ten Year will head upward, to its long-term average and beyond, as bond vigilantes beat the drums and announce the bankruptcy of the US of A.

    Maybe Fear drives it. The world is an unstable place, and everything is inter-related. China is a black box, but the odors emanating from it aren't really that pleasant: no floral overtones, that's for sure. Russia is fairly transparent, in contrast, but what we see is ugly, wretched excess of crony capitalism. Emerging market currencies are in turmoil. Whether that arises from their inherent weakness or from the cumulative effect of meddling by Financialists from the Axis of Evil that runs from The Street to The City is open to question.

    The thing is, the US government is in charge of a country that has tremendous (although diminishing) resources in terms of the rule of law, prudential regulation, and enforcement of and compliance with taxation. Bonds are promises, dependent on the ability and willingness of the promiser to deliver over the long-term future. The US government will print you some dollars when the note comes due, and raise some of the money by taxation.

    My point would be, that blue chip US corporations are better capitalized than their country's government, better managed, and responsive to shareholders, as opposed to an army of lobbyists and PACs all focused on their own special interests. To my way of thinking there is less to fear owning PG, JNJ, KO et al than in owning obligations of the USG.

    Disclosure: I am long SPY, PG, KO.

    Stocks: SPY, JNJ, PG, KO
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Comments (2)
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  • dancing diva
    , contributor
    Comments (2767) | Send Message
    I could well be wrong - it wouldn't be the first time :) - but I think what is being overlooked is how low the ten year yields of many other countries have become relative to the US - especially Europe. In this globalized world with money easily moving cross borders the US ten year yield does look relatively attractive.
    5 Feb 2014, 09:08 AM Reply Like
  • Tom Armistead
    , contributor
    Comments (6298) | Send Message
    Author’s reply » Good point, and thanks for the link.
    5 Feb 2014, 09:15 AM Reply Like
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