Watch the stock/bond ratio – poll results

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I posted an article on the stock/bond ratio a few days ago, discussing the likelihood of the period of safe-haven buying of bonds coming to a close and the underperformance of stocks since the middle of last year being in the process of reversing. In essence, the post asked whether we were seeing a turning point of any importance in the stock/bond ratio.

I have included an updated version of the graph of the stock/bond ratio used in the original post. (The blue line shows the stock/bond price relative, whereas the S&P 500 Index is depicted by the red line and the US 10-year Treasury Note by the green line.)



In order to gain more clarity on this issue, I engaged the help of readers by posing the poll question: “How do you see the US stock/bond ratio six months from now?” A total of 293 people participated in the poll and answered as follows:


As shown in the table, the result was a bit of everything: 29.7% of the readers preferred stocks, 39.6% preferred bonds, and the balance (30.7%) opted for a sideways pattern.

For the record, my previous conclusion was: “The stock/bond ratio may very well have some further backing and filling to do before registering an ‘all clear’ turning point. But let’s closely watch the spreads and other risk parameters and keep an open mind about interpreting the language of the market.”

I will be running more of these polls in future, not only because the results are interesting, but also to try to ascertain whether one should perhaps put a contrarian spin on the numbers. For example, does the poll result of 70.3% of readers not seeing stocks outperforming bonds constitute an overly bearish reading that should perhaps be interpreted as bullish? More polls need to be run and the results correlated with the subsequent unfolding of events before one can venture on this terrain.

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I am writing this story in midair between Johannesburg and Washington, en route to an investment conference in La Jolla, San Diego – a total of 34 hours at airports and on airplanes as I am crossing 10 time zones. But it should all be well worth the effort as I will be meeting up again with business partners John Mauldin (Thoughts from the Frontline) and Rob Arnott (Research Affiliates). Appointments with a few new people also await me, notably with the likes of Paul Kedrosky (Infectious Greed), Donald Coxe and a number of other very interesting people.

Blog posts will unfortunately be rather slow until next week and, specifically, “Words from the Wise” will take a break on Sunday as I will not have access to my usual research sources.

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6 comments to Watch the stock/bond ratio – poll results

  • Watch the stock/bond ratio – poll results…

    I posted an article on the stock/bond ratio a few days ago, asking whether we were seeing a turning point of any importance in this ratio. In order to gain more clarity on this issue, I engaged the help of readers by posing the poll question: “How do…

    Watch the stock/bond ratio – poll results » Investment Postcards from Cape Town

    I think we have to watch the impact of city and state debt and tax revenues that may impact next quarter’s earnings.

    They are in trouble and cutting spending and laying people off. If there is a further negative impact on companies that depend on city and state spending, this could get much worse for the economy.

  • Scott

    While there may be a turning point showing int he chart, it does not necessarily follow that absolute performance of either will be good.

    If – and it’s still a big if – bond rates move up the value of bonds will fall and the relative performance of stocks may be better. However, I would not expect stocks to provide positive returns until rates stabilize.

  • Love the polls effort. If you could get John M to us his distribution list you could get more responses. Sorry, it just occured to me that this effort might not automated. Just keep doing what you are doing in all areas.


  • Mr. Obvious

    I think the U.S. long bond is ridiculously overvalued. It wouldn’t take an heroic effort by stocks to outperform it. It looks to me like the poll reflects more a dour outlook for equities than a consideration of the relative strength chart. I wonder how the poll might have turned out had the following choices been presented: 1. Short the long bond, go long stocks; or 2. Short equities, go long the long bond. Prieur, will you follow up to the topic in six months?

  • Mr Obvious: Good suggestion! I will keep this in mind for future polls. I am planning to run polls fairly regularly as these seem to be of interest to quite a number of the readers.

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