Why You Should Believe Bonds And Not Stocks (Again)

Tyler Durden's picture

Equity prices - and more specifically valuations - are becoming increasingly disconnected from economic reality. As Bloomberg's Jo Brusuelas notes though the Fed may be driving up asset prices without achieving their end goal of improving economic conditions - based on a number of recent economic surprises. As earnings expectations and a global slowdown continued to point to recessionary outcomes (with industrial and consumer data weak), the probability of a fundamental mispricing in stocks and bonds grows. But when we look over the medium-term at how bonds and stocks react to negative and positive economic surprises over time, it is more than abundantly clear that not only is the bond market more sensitive-to and reflective-of the economic state of the world (and its expectations) but the equity markets remain significantly less sanguine about reality (about 20% less!!).


Bonds are within 0.5bps of the change we would expect given fundamentals...


but stocks appear around 20% mispriced relative to economic expectations over the past six months...


As Brusuelas notes:

The relationship between economic surprises and bond yields is straightforward. As new economic information arrives, investors adjust their expectations about likely economic growth, which is followed immediately by changes in fixed income order flow. As those economic growth expectations shift, equities prices may later adjust.


Charts: Bloomberg Briefs

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slaughterer's picture

Something HORRIBLe is going to be announced in AH today.  LAst time I say it.  

Vincent Vega's picture

You must be talking about the debate toinight.

FL_Conservative's picture

Must be a fucking asteriod heading our way, eh?

optimator's picture

Or, half  the Iranian Navy, all one of their destroyers, on maneuvers in Long Island Sound.

Mark Carney's picture

cool, care to elaborate or just throwig shit at the wall?

FL_Conservative's picture

Come on Slaughterer!  When is this news coming!  I need to go take a dump and don't think I can hold it much longer!

optimator's picture

Where?  Not on CNBS, Blooom, or any of the major media.

Thought criminal's picture

Hmph so where is it? You know some people might lose money and get realllly pissed if u keep throwing sht like that around?

CClarity's picture

Uh-oh.  APPL at that dreaded 666 again.  HP (Hell's Peeps) plunging 11% and a flash crash in food - Kraft.  These are not good omens.

Rainman's picture

Oil down 4%.....word is out Biden discovered the middle class is being crushed.  

FL_Conservative's picture

Actually, he said the middle class was being crushed and processed into a new form of synthetic crude oil.  Code name "Oylent Brown".  That's why oil is rolling over.  New competition from renewable source.  He's one fucking smart dude to think of that!

DoChenRollingBearing's picture

Stocks and bonds are both expensive, IMHO.  They're both OK to hold, but, add some gold, silver and Pb to your portfolios!

LongSoupLine's picture

yep, just not the Trader Joes one...

JuliaS's picture

Plumbum - Latin for "lead", periodic symbol [Pb] . The term borrowed from ancient Rome gave origin to the English word "plumbing".

slaughterer's picture

Get ready for the HORROR show AH.  OMG.  It sucks.  

fonzannoon's picture

Is it a horror if you are short? Is it that bigtime drudge obama video again?

slaughterer's picture

 If you are short, the HORROR will be good for you.  

fonzannoon's picture

I give you a lot of credibility slaughterer. If it is Moody's downgrading Spain I will be disappointed. This will lead them to ask for a bailout which will be bullish.

If it is Apple making a public apology to foxconn workers and offering them a 1000% thats another thing....

Dr. Engali's picture

Don't get us all worked up like some lame ass  hyped up Drudge video.

Squid Vicious's picture

yeah haven't seen much of that fuktard, or is it fox-tard? CPL and his "America-changing event" today

Squid Vicious's picture

ok slaughterer it's now AH... as Ted Knight said in Caddyshack: "we're WAITING..."

fonzannoon's picture

Maybe he was playing games with the hft guys and we were just pawns in his game. I feel so used.

amadeusb4's picture

... and there goes your credibility. Is there some sort of "ignore this user" option on ZH?

gjp's picture

dude, slow down on the coke will ya? you're not going to make it to 30 at this rate

Dr. Engali's picture

What's the big news? You didn't really jack of to a porn hub Suzie Diamond video.?

ptoemmes's picture

Romney's spray on tan was sabotaged and he will be forced to debate in black face?

Squid Vicious's picture

they found an old Obama video where he talks like a black dude? wait, that was last night...

HelluvaEngineer's picture

Osama walks onstage during the debate tonight, with a copy of Obama's real birth cetificate in hand.

Piranhanoia's picture

I believe that my bonds will be paid off with inflation factored in so my yield will really be 28% in a distant future utopia.

Mr Lennon Hendrix's picture

Who fucking cares when both stawks and bawds are being manipulated by the President's Working Group on Financial Markets:


Dr. Engali's picture

By the way oil is rolling over  today (they are working hard to get gas down for Obummer) I wonder if it's signaling a role over in stocks. 

FL_Conservative's picture

No, its just the fucking speculators again.  /sarc

Mr Lennon Hendrix's picture

The fine line between input costs and return is tighter than the string that connects Bernanke's ass and mouth.  Pensions need stocks to stay up since bonds are giving investors no return, yet oil is taking any surplus away from the retirees.

If Bernanke wants to sacrifice high oil prices to the gods of the underworld he will have to do it by shorting it, otherwise he would increase the value of the DXY and collapse the stock market.  Yet throwing fiat into the fire to keep a lid on oil will only last as long as it takes to burn a pile of dollars for warmth.

I'll give it a week.

Quinvarius's picture

Personally, I smell a margin raise in oil or SPR smashdown coming.  Could be either with this magnitude of frontrunning.

Mr Lennon Hendrix's picture

You may be right.  Too bad when they raise margins on oil people can't go out and buy physical...like we can gold.

optimator's picture

They can't broadcast why oil is down and gas is up, sure wish someone would ask Carnak, meant Bernak, next meeting he has.

fonzannoon's picture

CNBC doing a big piece on Apple right now. Specifically how Apple owns the biggest hedge fund. They are crediting some no name underground thing called Zerohedge as their source....

Dr. Engali's picture

Damn it fonz I went and turned on that accursed channel only to miss it.

fonzannoon's picture

What's with Slaughter and the word HORROR? He keeps using that word. Let's unlock this secret.

Squid Vicious's picture

he watched Apocalypse Now a few too many times...

Ineverslice's picture

Please, just give me my Obamaphone and let me go home.

Short NDX (fu aapl)

Squid Vicious's picture

this time it's different, equities are right... loaded up on homies and Robo-tard faves all day...

kornholio's picture