We’ve written a lot about one of the biggest catchphrases on Wall Street right now: the “Great Rotation” out of bonds and into equities that many strategists expect sometime in 2013 as economic growth hits an inflection point and investors begin to price in an end to easy money central bank policies.
One of the biggest fears in the market right now is that investors could be caught off guard by a surprise surge in interest rates as money flows out of bonds, resulting in a “1994 scenario” wherein the bond market gets crushed.
On the other hand, there is the experience of the 1960s. BofA Chief Global Equity Strategist Michael Hartnett says that template is “Bernanke’s ideal Great Rotation” in his latest presentation.
In the 1960s, equities and risky assets took off ahead of bond yields, much like they have today. However, in the 1960s, yields didn’t scream higher right away to catch up to the move, and inflation remained subdued:
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