Stocks Look Very Attractive Compared to Bonds

By on August 14, 2011

Reuter’s Felix Salmon discusses a very interesting chart of data comparing U. S. large cap stocks earnings yields to 10-year Treasury yields. It shows a stunning divergence that began in the year 2002 and has only grown wider (with ups and downs) in the past 9 years.

Click on chart to enlarge:

Salmon is puzzled by the massive divergence between earnings and bond yields believing it may stem from investors suffering through the dot com bubble and becoming risk averse.

SMA Comment: The widening premium that investors are paying for fixed income may also be attributable to demographic factors. The vast baby boomer generation are uncomfortable with wide fluctuations in their portfolios and are probably seeking the perceived safer, stable returns of bonds. However, my feeling is they’ve taken this too far and equities are probably the more prudent bet at this juncture. If the U. S. follows the Japanese experience my assessment will probably be proved wrong though.

Source: Reuters


  1. Paranoid Android

    August 15, 2011 at 12:57 pm

    The people are shedding debt which makes debt more valuable. Stocks are a trap in a deleveraging cycle IMHO.

  2. Clifton Portis

    August 15, 2011 at 2:22 pm

    The market’s fantastical swoon in the past few weeks was entirely due to a manufactured crisis. The powers that be planted seeds of distress in the wobbly minds of speculators worldwide via CNBC, Fox News etc. They did the same thing last summer and will do it again and again.

    There is a debt problem, but then again there has always been a debt problem. We are nowhere near a collapse of capitalism. The wonders of innovation and increased productivity will carry society through their debt weakness.

    Work, be productive, and invest people!

  3. Lou Skuntz

    August 15, 2011 at 4:45 pm


    Who are these mysterious wielders of corrupt power?

  4. Clifton Portis

    August 16, 2011 at 2:05 pm


    The Bilderberg Group and Goldman Sachs drop the world’s stock markets 15-20% at will. It is easy for them to profit when they control the movements of the market via their media pawns. Just think what they accomplish with futures and options.

    Everyone who has money at stake must watch this:

    • Berry McCaulkiner

      August 17, 2011 at 2:12 pm

      GS’s ability to control the markets isn’t reflected in its stock price. Compare the S&P to GS for the past year. The ups and downs are closely correlated but S&P is about 30% higher.

      • Clifton Portis

        August 22, 2011 at 4:44 pm

        The devils at GS are desperately searching for a new bubble to exploit as their stock price justly sinks. I suspect it will be in M&A if they can’t figure out how to profit from the advance in precious metals.

        Via M&A they can convince corporate honchos into spinning off parts or splitting up to enhance “shareholder value.” This is generally a crock, and is only a ploy to generate massive fees and make it look like corporate managements are actually doing something in the interest of shareholders.

        GS currently has a dim spotlight on them, but public perception is fickle and fleeting. They will soon be free to loot and pillage at will as soon as the media moves onto something more enticing and fresh.

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