Listen/look on that here:
https://ritholtz.com/2020/07/transcript-bill-mi...
"
... RITHOLTZ: So, you mentioned 60 basis points on the 10-year, what do you make of the bond market where it is? Is it telling us anything about inflation? And what sort of support does that provide for equities if yield on treasuries is practically nothing?
MILLER: Yes. It’s really interesting that the current yield on the S&P 500 is about three times the yield on the 10-year treasury. And so, one of those so-called no-brainer trades to me would be if you’ve got a 10-year horizon in the market or even a five-year horizon for that matter, go long the — an equity index fund and go short to five-year or 10-year treasury.
It would seem to me that the things — it’d be very difficult to lose any substantial amount of money and, again, if the — if the people were worried about inflation, right, and inflation isn’t a problem for the next couple of years for sure. But if it becomes a problem in year three, four, five, and the yield curve start shifting up significantly, then that would be a — that would be kind of a home run trade.
So, I think right now, I mean, interest rates as my center runs or income funds, the data shows that interest rates have been falling in real terms for 800 years. And so, you don’t want to bet that interest rates are going to rise and my turn (ph) to that as well, if you lived a thousand years that would be relevant. But what we see on the bond market is that it goes to these long cycles, so we had a 35-year bear market in bonds, almost a full working career from 1946 to 1981 and I’ve got a 38-year bull market in bonds.
And rates can’t go much lower than where they are right now. Maybe they’re not going to go up a lot but they’re negative in real terms and certainly real terms after tax. So, I think bonds are as unattractive now as stocks were in September of 1987 when then 30-year yielded 9 percent and the stock market yielded about 2.8 percent and the stock market traded at the highest PE since 1929.
And so, there was no reason to own stocks then because the dividend yield and the dividend growth rate and stocks is about nine percent. So, if everything went well, you’d get close to nine percent in stocks if valuations didn’t drop and they stayed at the all-time high.
But otherwise, why is it buy 30-year bonds and go home? And that was the right thing to do then and I think the right thing to do now is to forget about bonds except in a very rare instance that you might think we have a deflationary bust. In which case, OK, Ben Graham talked about having no less than 2five percent a year money in bond. So, put two five percent in quality corporates or something like that. But I don’t find bonds at all attractive now. ..."
Listen/look on that here:
https://ritholtz.com/2020/07/transcript-bill-mi...
"
... RITHOLTZ: So, you mentioned 60 basis points on the 10-year, what do you make of the bond market where it is? Is it telling us anything about inflation? And what sort of support does that provide for equities if yield on treasuries is practically nothing?
MILLER: Yes. It’s really interesting that the current yield on the S&P 500 is about three times the yield on the 10-year treasury. And so, one of those so-called no-brainer trades to me would be if you’ve got a 10-year horizon in the market or even a five-year horizon for that matter, go long the — an equity index fund and go short to five-year or 10-year treasury.
It would seem to me that the things — it’d be very difficult to lose any substantial amount of money and, again, if the — if the people were worried about inflation, right, and inflation isn’t a problem for the next couple of years for sure. But if it becomes a problem in year three, four, five, and the yield curve start shifting up significantly, then that would be a — that would be kind of a home run trade.
So, I think right now, I mean, interest rates as my center runs or income funds, the data shows that interest rates have been falling in real terms for 800 years. And so, you don’t want to bet that interest rates are going to rise and my turn (ph) to that as well, if you lived a thousand years that would be relevant. But what we see on the bond market is that it goes to these long cycles, so we had a 35-year bear market in bonds, almost a full working career from 1946 to 1981 and I’ve got a 38-year bull market in bonds.
And rates can’t go much lower than where they are right now. Maybe they’re not going to go up a lot but they’re negative in real terms and certainly real terms after tax. So, I think bonds are as unattractive now as stocks were in September of 1987 when then 30-year yielded 9 percent and the stock market yielded about 2.8 percent and the stock market traded at the highest PE since 1929.
And so, there was no reason to own stocks then because the dividend yield and the dividend growth rate and stocks is about nine percent. So, if everything went well, you’d get close to nine percent in stocks if valuations didn’t drop and they stayed at the all-time high.
But otherwise, why is it buy 30-year bonds and go home? And that was the right thing to do then and I think the right thing to do now is to forget about bonds except in a very rare instance that you might think we have a deflationary bust. In which case, OK, Ben Graham talked about having no less than 2five percent a year money in bond. So, put two five percent in quality corporates or something like that. But I don’t find bonds at all attractive now. ..."