Stocks Vs. Bonds

Lollipop candy sweet

Photo: Cillian Storm, Flickr

From Felix Salmon, a crude way of looking at how much bullishness there is in Treasuries vs. equities right now:And while you’re at it, you might want to revisit that asset allocation, and ask yourself whether having all that money in bonds is particularly smart. If you’re invested for the long term — a 10-year time horizon, say — then a 2.4% yield over those 10 years is utterly pathetic, and can easily get eaten away by inflation alone. Meanwhile, with expected earnings of $99.83 per share this year, the earnings yield on the S&P 500 is a whopping 8.8%.

Obviously earnings can (and in this case, probably will) evaporate, but that is pretty extreme, and a good indicator of how much investors are focused on safety (wealth preservation) although given the capital accumulation bond investors have seen of late, it looks like you can actually have preservation and accumulation in the bond market.

Another indicator of bond love/equity hate: 22 stocks in the Dow pay more in dividends than Treasuries do. But again, if your principal is melting away like this, then that may be cold comfort.

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