http://thereformedbroker.com/2016/07/12 ... rewritten/
Interesting take
Rewriting the Laws of Finance
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dualstow
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Re: Rewriting the Laws of Finance
Ha! Bonds may be the new stocks, but I don't accept that stocks are the new bonds.
Very entertaining read.
Very entertaining read.
Re: Rewriting the Laws of Finance
Certainly not with regard to volatility, but this is one of several places I've seen this assertion being made (stocks being bought for yield). Additionally, there is a theme that cheap money is driving A LOT of share buy backs right now. I sort of buy into this a bit as value and high div stocks are on a tear right now.dualstow wrote:Ha! Bonds may be the new stocks, but I don't accept that stocks are the new bonds.
Very entertaining read.
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MachineGhost
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Re: Rewriting the Laws of Finance
This has been going on for a long time. It's not new except maybe to the lamestream media or blogsphere.
Basically, dividend payers and low volatility stocks are second tier proxies for value stocks. Just as momentum is a second tier proxy for growth (real growth not the other end of a multi-factor value screen).
So now that all stocks are overvalued in the aggregate as opposed to just Mega caps in the 90's, they're not going to deliver very bond-like long-term returns going forward anymore than bonds themselves will.
So essentially in a late stage bull market like now you want this cocktail: Large Value with an International Twist, but early after a bear market ends you want Small Growth with a Domestic Twist. It's unfortunate this doesn't really show up as "optimal" in backtests though.
As far as bond yields being issued below zero (still haven't seen it but a 10 year BUND was offered at 0% coupon rate with -.5% YTM yesterday), it's just a guaranteed loss if held to maturity. Anything else relies on the Greater Fool theory. For the PP, I don't think it will matter but it will still be very painful on yields reversing to positive if you don't cap your duration exposure.
Basically, dividend payers and low volatility stocks are second tier proxies for value stocks. Just as momentum is a second tier proxy for growth (real growth not the other end of a multi-factor value screen).
So now that all stocks are overvalued in the aggregate as opposed to just Mega caps in the 90's, they're not going to deliver very bond-like long-term returns going forward anymore than bonds themselves will.
So essentially in a late stage bull market like now you want this cocktail: Large Value with an International Twist, but early after a bear market ends you want Small Growth with a Domestic Twist. It's unfortunate this doesn't really show up as "optimal" in backtests though.
As far as bond yields being issued below zero (still haven't seen it but a 10 year BUND was offered at 0% coupon rate with -.5% YTM yesterday), it's just a guaranteed loss if held to maturity. Anything else relies on the Greater Fool theory. For the PP, I don't think it will matter but it will still be very painful on yields reversing to positive if you don't cap your duration exposure.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
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dualstow
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Re: Rewriting the Laws of Finance
Sigh, there's nowhere to turn. I guess I'll buy that new Disney 30-year bond. Or maybe latch on to the 100-year one from the 90s. 
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MachineGhost
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Re: Rewriting the Laws of Finance
No, no, wait for the perpetual bond from Japan! Any day now. It'll be stranger than fiction if it is what I think it is.dualstow wrote:Sigh, there's nowhere to turn. I guess I'll buy that new Disney 30-year bond. Or maybe latch on to the 100-year one from the 90s.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
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dualstow
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Re: Rewriting the Laws of Finance
Is it like the British consols of old?
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MachineGhost
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Re: Rewriting the Laws of Finance
Maybe, but without a coupon rate!dualstow wrote:Is it like the British consols of old?
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!