A case for bonds?
Posted: Mon Nov 22, 2021 10:34 am
https://wealthion.com/hussman/
I was listening to an interview of hussman... Yeah, he's trying to justify his market lagging returns. However, I think he presents a good argument.
It is a fiction that stocks, at any price, are better than low-yielding bonds. If you want to make
that argument to investors – here I’m speaking directly to analysts on Wall Street and the
Fed – at least have the intellectual decency to test your estimates against decades of actual
subsequent market returns, and show them side-by-side. By our estimates, the S&P 500 is
likely to lag Treasury bonds by about 8% annually over the coming decade – the largest gap
in history, and slightly worse than the outcomes after 1929 and 2000. For a discussion of
equity risk premium (ERP) models, including the Shiller-Black-Jirav “excess CAPE yield”,
see A Good Response to a Bad Situation.
Yes, bond yields are lower than they were in 2000, but equity valuations are also more
extreme. The end result for relative returns is likely to be similar to that of previous bubbles.
Even an “error” as large as the one we’ve seen in the past 12 years (which would require
future valuations to remain at bubble extremes) would leave S&P 500 total returns at or
below the lowly returns on Treasury bonds. The main thing the Federal Reserve has
accomplished is to create a yield-seeking bubble that has driven both bonds and stocks to
valuations that imply dismal future outcomes.
I was listening to an interview of hussman... Yeah, he's trying to justify his market lagging returns. However, I think he presents a good argument.
It is a fiction that stocks, at any price, are better than low-yielding bonds. If you want to make
that argument to investors – here I’m speaking directly to analysts on Wall Street and the
Fed – at least have the intellectual decency to test your estimates against decades of actual
subsequent market returns, and show them side-by-side. By our estimates, the S&P 500 is
likely to lag Treasury bonds by about 8% annually over the coming decade – the largest gap
in history, and slightly worse than the outcomes after 1929 and 2000. For a discussion of
equity risk premium (ERP) models, including the Shiller-Black-Jirav “excess CAPE yield”,
see A Good Response to a Bad Situation.
Yes, bond yields are lower than they were in 2000, but equity valuations are also more
extreme. The end result for relative returns is likely to be similar to that of previous bubbles.
Even an “error” as large as the one we’ve seen in the past 12 years (which would require
future valuations to remain at bubble extremes) would leave S&P 500 total returns at or
below the lowly returns on Treasury bonds. The main thing the Federal Reserve has
accomplished is to create a yield-seeking bubble that has driven both bonds and stocks to
valuations that imply dismal future outcomes.