Friday, May 8, 2015

Bonds are overvalued, not stocks

WSJ RTE - bonds are overvalued, not stocks. Seriously, they are:
For example, in theory, the return on a 10-year bond should be roughly equal to the return on holding Treasury bills for 10 years, plus a bit extra, which is called the term premium.

The term premium compensates investors for the fact that bonds are much more volatile than T-bills, largely because investors may guess wrong on the path of short-term rates. For 10-year bonds it has averaged 1.6 percentage points since 1961, according to estimates by staff of the Federal Reserve Bank of New York.

With inflation low, the economy operating below capacity, and the Federal Reserve promising to tighten monetary policy ever so slowly, Treasury bills aren’t going to return much for a while. Yet even after taking that into account, bond yields are strangely low, because the term premium is close to zero. Indeed, until a a few weeks ago it was negative. In other words, investors were actually paying up to own bonds rather than Treasury bills, which is not the way the world is supposed to work.

No, it's not.

But the people investing in US bonds nowadays aren't calculating term premium to see whether it's a good deal. Because the people investing in US bonds don't calculate anything.

The people investing in US bonds are hedge fund cokeheads who buy whatever's going up. Maybe the less coked-up of them also feel they still have to hold to a 50-50 asset allocation despite bonds yielding less than T-bills.

What can explain the fact that investors are wary of the risk in owning stocks but so cavalier about bonds? It comes down to the threats that hang over the world economy.

Bullshit, WSJ, you clueless fucking morons. There are no fucking threats hanging over anything. The fucking US is still in the middle of a secular bull market, Japan is heading out of depression, China will still grow over 6%/y for the rest of the decade, and the EMS generally aren't cratering like we thought they would. Pull your heads out of your fucking asses, you neocon fascist Republican assholes, before you miss the next 5 years of a bull market.

Put simply, there's far too much capital out there, and not enough places for it to get invested unless OMG they put it into equities. Or chase yield in the EMs.

I mean, the rich could pay more taxes instead, and then governments could invest that money into anything with a 10-20 year payback - new highways, better education, development of human capital, preventative medicine. That would all yield productivity gains, it'd go towards building value.

But the fucking idiot Republicans out there who cry about how money isn't going to anything productive are also against putting money into anything productive. Because it helps minorities and is socialist.

So the asshat Republicans fail to fund highway repair and the highways fall apart, they cut education funding and otherwise-potentially-productive people end up in poverty for life, they hold sixty fucking votes to attempt to defund ACA.

So now you've got too much money, you rich asshats, and nowhere to find yield. And your country is developing an ever larger productivity shortfall. And because you're idiots, you have just bid US bonds up to insanity.

Capitalism has no "invisible hand": it has an invisible fucking brain tumour.

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