TINA, man! Those of us who follow the markets closely have heard that acronym - There Is No Alternative - uttered by some who also like to shout "booyah" and other indistinct nonsense. There Is Nothing Else. For balanced investors, that may have been the case in the last bull market, which since the indexes have entered correction - although stabilizing this morning - is officially over.
For the period 1973-2003, as shown in the chart in this Reuters article, the spread between the yield on the U.S. 10-year Treasury and the S&P 500 had never crossed 200 basis points. That is to say, bonds had never failed to yield at least 2 percentage points more than stocks. In the early-1980s Paul Volcker "shock treatment" days, that spread neared 10 full percentage points. Take that, Woz and Jobs! Keep your fancy, newfangled Macintosh... I'll stick to Treasuries.
Well, Tim Cook is running Apple (AAPL) now, and he has presided during an era in which the yield on stocks has risen higher than that of the 10-year Treasury note. That spread rose as high as a positive 200 basis points in the throes of the Covid correction.
Fast forward to yesterday, and according to multpl.com, the S&P 500 was yielding 1.34% and the 10-Year UST was yielding 2.02%, although that fell slightly this morning.
Does that mean there is a reason to own bonds again? Or does that mean the market is going to "correct" the stock market back to a level where its yield matches that of the bond market. Assuming a constant stream of dividends, that would imply a fair value for the S&P 500 of 3017, or a decline of 33% from yesterday's close.
I am not predicting a 33% correction in stocks, although the Tech Titans could easily see such a move if the Fed panics. According to yesterday's CPI data, U.S. inflation is running at an annualized rate of 7.5%, a pace not seen since the early 1980s. There hasn't been an intra-meeting rate hike since 1994. You want to see stocks trade at a fair level, Jerome? Just do it.
Powell clearly lacks the courage to lead his FOMC colleagues in such a move. They don't care that inflation is ravaging your household balance sheet. They just don't.
Powell is so relentlessly, astoundingly bad at his job that I think there might be a position open for him at NIAID when his Fed tenure mercifully ends. But, technically, it already has. Powell is actually the interim Fed Chair now until he is re-appointed to that role by the Senate.
Is there hope? Can we finally have grown-ups running the Fed? Get serious.
Your supermarket bills are going to continue to skyrocket, the cost of heating your home is going to continue to eat into your paycheck and whether you drive an F-150 or an R1T, the "fueling" costs for your vehicle will continue to rise. Both retail gasoline and retail electricity prices have jumped this winter.
Where does it all end? You might add some bond exposure to your portfolio through a highly-liquid bond ETF like iShares' (AGG) , which gives total bond market exposure, or (LQD) , which is focused on corporates. AGG is yielding 2.28% today and the iShares website is showing a 3.11% yield for LQD. That's more than you will ever get from the S&P 500, again, barring a major correction.
Calculating a "going forward" yield on my HOAX portfolio is difficult because of the inconsistent nature of the dividend payouts from some of the companies, especially Petrobras and the coal names, Arch (ARCH) and Peabody (BTU) . Petrobras has pledged to maintain a quarterly dividend payout scheme going forward, and those coal company dividends are not going anywhere but up, based on my analysis of payout ratios.
For every day that oil is above $70/bbl, those dividends accruing to HOAX are, by my calculations, fully funded. Today WTI is quoted at $91.01/bbl and Brent is quoted at $92.38/bbl.
Please politely ask TINA to leave. All she brought with her was a bunch of overpriced, faux-disruptive companies that burn cash and, in the case of Twitter (TWTR) and others, actually make human life worse. Thanks, TINA!!! Get the hell out of here and take your booyahs with you.