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Yield: Dow 30 vs. 10-year U.S. Treasury
By Dian L. Chu, Economic Forecasts & Opinions
Government bonds across the globe are benefiting from concern about anemic economic growth, the risk of deflation in the US, and the Federal Reserve’s decision to reinvest maturing bonds and buy US Treasuries. Yields on Japanese, German, UK and US government bonds fell to fresh multi-month and, in some cases, all-time lows.
Meanwhile, analysts’ advise that “It seems U.S. bonds are still the safest place to hide”, and market herd mentality is making the Hindenburg Omen an ever more self fulfilling prophecy.
With the current terribly low yield (see Treasuries table), it is hard to justify putting one’s hard earned money into the U.S. Treasury. In fact, forget about the China property bubble that everyone seems to be losing sleep over, the global bond market is truly screaming for an imminent burst.
On the other hand, stocks are relatively cheap as compared to bonds. For investors looking for yield and inflation protection, the average 2.94% dividend yield (see Dow table)--plus the potential stock price appreciation--of all 30 Dow Jones Industrial average stocks is looking a lot better than the 2.568% yield on the 10-year Treasury.
Equities historically outperform bonds. And the current Dow 30 composition is probably the strongest on record. So, the strategy here is simple--get in on these blue chips when everyone else is still playing musical chairs over at the bond market. Then, sit tight knowing at least a portion of your profolio will ride the Dow 30's nice dividend yield, and the price appreciation coming from their solid long term top line growth.
Dian L. Chu, Aug. 16, 2010
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Looks like a ugly sister contest to me.
Just because a used diaper is cheap at 1 penny doesn't mean it's a good deal...
Well it depends...how much can it be resold to the Fed for?
Shameful
You are shameless...
In an unprecidently stimulative economy with unsustainable deficits anything can happen and it probably does not depend on US initiatives---after all we created this financial credit mess and are using the same techniques as a solution ? NYT last paragraph of editorial 10/16 symbolizes this schizophrenia
"After the risk recession has receded, the US must work hard to correct its longstanding trade deficit with the rest of the world by slowing national spending and increasing savings. But there will be no recovery---here or around the world---unless all of the major economic players do more to bolster demand right now" ------- Sounds like a Chinese treadmill designed for the developed economies.
what happened to the ramp in the last fifteen minutes? i sat and waited.....pffffft!
I havent seen such an absurd forecast Miss Chue.
You should not do any forecast IMO.
Late to enter the R.E, MArket in 2004, too late to buy the market in March, 2009, or Gold in 2005, now too late to buy Treasuries....all are now bubblicious.
Time to get into some Alpaca fur. That's the tickie.
Pretty sure gold is not in a bubble actually. If stocks/bonds/USD crash, so will gold, but at a much slower rate, hence the large relative gain. This already happened recently with the last market crash.
"For investors looking for yield and inflation protection, the average 2.94% dividend yield (see Dow table)--plus the potential stock price appreciation--of all 30 Dow Jones Industrial average stocks is looking a lot better than the 2.568% yield on the 10-year Treasury."
The problem I have with this logic is it assumes the stock price will not fall. With a gov bond, if you hold to maturity, you should get back your basis as well as the interest. Although the SP500 is returning 2.94%, good luck selling the stock at the price you bought it.
"No, no! Don't go into the light....!
http://www.youtube.com/watch?v=bCOfJi67I0k
PPT got the afternoon off.
PPT got the afternoon off.
Would someone with a slide rule adjust the two projected returns for risk and report back to us?
let see here
bonds are in a bubble, so I should buy stocks
hmmmmm......
when the bond bubble bursts, stocks will
a) tank
b) get their ass kicked
c) totally fucking crash
sold! to you
Are you suggesting that the Dow will maintain or grow in value if the bond market takes a dive!! Your analysis is incredibly naive.
I'd like to see more posts like this. Yes, indeed, stocks are offering an incredibly rich yield of almost 3% -- wooo hooo! Mr. AhChoo clearly has been in this game for a very short time. LOL. And yes, U.S. bond yields are "terribly low" -- assuming you don't know about JGBs @ .93, or the Swiss 10-yr. @ 1.16 or Germany's 10-yr. @ 1.4. Short 'em like you got 'em, AhChoo -- you and my pal Nassim Taleb are a Treasury bull's best friends.
Gesundheit!
I agree with your feelings about " terribly low ". It'll be interesting watching the UST 10y in a race with the JGB to go truly and terribly lower. The Japanese have quite a head start, though, and talk is brewing about more easing soon. And that 190% debt to GDP is worth a few strokes, too, that's for sure. But we'll catch up quick.
I would fire someone if they gave me this type of report. What about risk/return? Treasuries will (almost) always pay. You are aware that dividends are subject to risk and can very easily decline?
You mean like BofA going from a 15% div yield to a .30 in just 6 months ??
Yes,I see what you mean about risk/return.
Both stocks and Bonds are massive bubbles waiting to burst. Cost of living and everything else going up 5%+ everywhere I look.
the extended notextended bush tax cuts on divvies is in play and adds to the unusual uncetainty of the dow after tax yield.
Mr. Chu
Your crystal ball says more printed $ will come & its going into equities not bonds
Brilliant
Mr. Chu is actually a Ms.
http://dianchu.blogspot.com/
Good call
Bloo chips, bitchez.