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Bonds Or Stocks: Which Bubble Is Bigger? SocGen Answers

Tyler Durden's picture




 

One of the more vocal debates of the past several years is whether the bubble in bonds is greater than that in stocks, or vice versa. While it will hardly resolve the ideological debate, in its latest "Risk Premium" report, SocGen presents a matrix showing the relative cheapness, or rather lack thereof, of various asset classes and what returns one may expect.

The conclusion, which will hardly come as a surprise to anyone who has observed the past 7 years and $13 trillion in central bank liquidity injections, is that everything is overvalued.

Quote SocGen's Alain Bokobza:

Rich valuations point to the likelihood of low returns across asset classes. [W]e develop a cross-asset approach to risk premia and implement it across the asset classes. The results show that valuations are rich across the board. This indicates markets may become shaky as we get closer to the first Fed rate hike in nine years.

That's putting it mildly, but perhaps more notable is that when looking at US Treasurys and US equities, at least according to SocGen, both asset classes are equally bubbly, and assure nearly identical negative long-term returns (something Jeremy Grantham also noted about a year ago when he said that the S&P will likely rise to 2250 at which point the bubble will finally burst).

One final thing to note in the chart above: the only asset class which does not appear massively overbought and expensive, are Asian government bonds, equities and junk. Which means that as the world wonders where the last source of monetization will come from for the final buying burst, in the central banks' "all-in" gamble to reflate the final bubble, everyone will soon be looking at the PBOC, just as we suggested last week.

And of course, once China is also monetizing, and in the process exporting epic deflation across the globe, the final reflation burst will also be the simplest one and one Bernanke hinted at long ago in "Deflation: Making Sure "It" Doesn't Happen Here." This one:

 

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Sat, 03/14/2015 - 15:56 | 5889296 hairball48
hairball48's picture

"Tweedledee or Tweedledum"?

"Frick or Frack"?

 

You pickem

hairball :)

Sat, 03/14/2015 - 16:29 | 5889343 strannick
strannick's picture

Gold stocks aren't richly valued, dammit

PS, I wish that Bernanke's helicopter would hover over somewhere else besides Wall St.

Sat, 03/14/2015 - 21:20 | 5890087 MisterMousePotato
MisterMousePotato's picture

What a coincidence - wonder if HTG Capital's allegations could have any bearing on this (assuming they're true, of course, which is unlikely, of course, given that that would be illegal, of course).

Sun, 03/15/2015 - 01:49 | 5890507 blowing winter
blowing winter's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://goo.gl/ezLA00

Sat, 03/14/2015 - 15:59 | 5889305 orez65
orez65's picture

Conclusion:

All bankers must be jailed, with the shortest sentence being 100 years.

Sat, 03/14/2015 - 16:03 | 5889313 venturen
venturen's picture

or 6 month on rikers island...and they would see the errors of their ways

Sat, 03/14/2015 - 17:57 | 5889523 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

All bankers must be jailed, with the shortest sentence being 100 years.

Execution is more appropriate. Even worst, being trapped in a jail cell with Hitlery for eternity as she rambles on about her love encounters with Jane Reno.

Sat, 03/14/2015 - 19:13 | 5889804 bwh1214
Sat, 03/14/2015 - 16:00 | 5889308 wendigo
wendigo's picture

Wouldn't the universe be the biggest bubble? Spacetime and all that. 

Sat, 03/14/2015 - 16:02 | 5889311 venturen
venturen's picture

where is a good surface to air missile when you need one? Even a laser pointer would do.

Sat, 03/14/2015 - 16:03 | 5889314 MATA HAIRY
MATA HAIRY's picture

ROTO YELLEN

THAT'S THE NAME

WASH YOUR TROUBLE RIGHT...

DOWN THE DRAIN...

Sat, 03/14/2015 - 16:05 | 5889316 AynRandFan
AynRandFan's picture

I'm not smart enough to understand why anyone, or any institution, would buy a bond with a zero or negative yield.  Can't imagine any investment being more over-valued than a bond with a negative yield.

Escapes me.

Sat, 03/14/2015 - 16:24 | 5889348 phoenixdark
phoenixdark's picture

I believe its governments around the world buying each others bonds including corporate bonds. to keep the ponzi scheme going.  don't worry when it collapses youll have little on no warning. It won't collapse now because too many people are crying.    I think it will go another decade or 2.

Sat, 03/14/2015 - 17:33 | 5889559 Absalon
Absalon's picture

If you are looking at the chart you need to keep in mind that for each asset class they are charting that classes current yield or internal rate of return MINUS the historical yield or rate of return. 

 

 

Sun, 03/15/2015 - 08:07 | 5890706 Free Wary
Free Wary's picture

Anything yield less than 8% (USD) is negative today.

Sun, 03/15/2015 - 18:54 | 5892326 Austrian Peter
Austrian Peter's picture

A reason to buy negative (income) yield is to obtain a capital (growth) profit, yield down, value up!  So he that buys said bond is planning for the bond to increase in value, sod the yield, this is short-term fianancial planning and don't forget the tax relief on capital gains.  It's never about a longer term gain, today we are in 'instant' territory (click of a mouse) - easy come, easy go - we call it 'day-trading' or sometimes 'nano-second trading'.

It's all unreal anyway, except the money - we always make da money!  If you don't understand it, stay away!

Sat, 03/14/2015 - 16:07 | 5889318 hairball48
hairball48's picture

So doesn't this beg the question about where will all this liquidity  go, or try to go when the pus boil  we call our economy breaks?

Still stackin' here...

hairball

Sat, 03/14/2015 - 16:28 | 5889356 Silversinner
Silversinner's picture

Next crash the peasants will puke up the remainder of 

their meager assets,dejavu?!

Capisce,sqeeeeeez.

 

 

Sat, 03/14/2015 - 16:35 | 5889364 Bighorn_100b
Bighorn_100b's picture

Peeps have a lot to say. Hint:

Beware of variable rates!

Get totally out of debt.

Hide.........Everything!

Enough said!

Sat, 03/14/2015 - 16:36 | 5889368 Global Hunter
Global Hunter's picture

Bonds are the bigger bubble because stocks can go up several hundred thousands percentage points a day if Yellen would stop being such a suck and print like Zimbabwe did (see Zimbabwe Industrial Index).  I believe they will take that option eventually rather than let the stock market crash too hard.

Sat, 03/14/2015 - 18:14 | 5889674 Sudden Debt
Sudden Debt's picture

Why  does everybody keep thinking that the Fed will raise rates unprepared?

 

They’ve rigged markets for every moron to see and every time every moron thinks they’ll never do it again...

 

The Fed might raise rates. And the markets will go up because they’ll buy assets in the dark making everybody believe raising rates is a good thing, the lemmings will follow and even after 2 days they won’t need to buy assets anymore.

8 years people. 8 years of market rigging and nobody has learned a god fucking thing about it.

And always it’s the same bozo’s saying the world will end. 

Sun, 03/15/2015 - 18:32 | 5892268 JenkinsLane
JenkinsLane's picture

Get to zee chopper!

Do NOT follow this link or you will be banned from the site!