The New Normal Of Investing: Bonds For The Price, Equities For The Yield

Tyler Durden's picture

The dividend theme has hardly run its course. As David Rosenberg of Gluskin Sheff illustrates in his latest note, the income-starved retiring boomers are being forced to garner income more and more via the equity market where dividends are up more than 8% over the past year.


Because of ultra-low interest rates, interest income growth has vanished completely. If you want income, you have to go to the lesser investment grade part of the corporate bond market, and even here, it is tough to get even a 7% coupon these days. Or you gravitate towards the dividend growth and dividend yield areas of the equity market T-bills and bank deposits protect capital but do not generate any return at all so that is a non-starter except for the most acute risk-averse folks in our midst.

And here is the great anomaly. Back in the early 1980s, investors bought equities for capital appreciation and they purchased Treasury securities for yield. Today it is the complete opposite. As the ongoing shift into hybrids strongly suggests, investors are gravitating to the equity market for a yield in a world where yield is increasingly a scarce commodity.


Moreover, investors are not buying Treasury notes and bonds for yield any more, but for the capital gain they generate - especially with The Fed's interventions taking more and more duration out of the private marketplace.


All the talk about "who in their right mind would lend 10-year money to Uncle Sam at 1.6%" obscures the fact that at low interest rate levels, returns get dominated more by the price changes in the bond. This is why anyone who, say, bought a plain-vanilla long bond a year ago at what seemed at the time to be a puny 3.7% yield, managed to experience a 22% total return: or a 44% net return for a 30-year 'strip' (zero coupon) bond.

So welcome to the new normal of investing: buying bonds for the price; buying equities for the yield.

Source: Gluskin Sheff

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orangedrinkandchips's picture

File it under: NO SHIT

Jack Sheet's picture

That looks like someone with 4 tits in your avatar.

TruthInSunshine's picture

These are the 'inside-out, upside-down, irrational=new rational' broken markets The Bernank hath sewn.

If anyone genuinely has convinced themselves that The Bernank's actions are immune from the laws of "to every action, there is an equal and opposite reaction" or those of basic arithmetic, I suggest you watch two of Michael Burry's recent lectures (one a Vanderbilt University lecture, the other a commencement ceremony speech).

We're staring directly at two of the largest bubbles, existing simultaneously in both bonds AND equities (and that's a neat trick and massive tell in terms of just how broken these "new markets" are), that we've seen in many, many decades, thanks to radical, unprecedented central fractional reserve bank interventionism in all things market related.

Many will doubt that there can be simultaneous bubbles in bonds & equities, but they're thinking of the pre-Bernanke period, and need to adjust their models accordingly.

Would I do that which I rarely have done and just as rarely spoken of, last done in 2007, and begin to build short positions here, based on my liking the odds of very out-sized and very adverse financial and economic events taking place at some point in time that's within my tolerance for risk? I've literally built my positions on paper and am ready to finance them, putting my fiat where my mouth is, as I write this.

Never bet against central banks, whether directed by Greesnpan or Bernanke (or Draghi, for that matter), they said, so many times before....and those assurances proved 100% incorrect, so many times before.

I literally see economic activity shrinking before my eyes, and whatever is left of it driven by new indebtedness, mainly as a result of broken, warped, twisted markets, resulting from new, central bank inflated bubbles in bonds [credit/debt] (aka interest rates), equities ("virtuous circle" for a very small segment of the populace; and there's a funny aspect to "virtuous circle" equity market 'wealth,' as it's subject to extremely quick vaporization since it all exists on paper at any rate), and yet again emerging appetite/tolerance of lenders to issue and borrowers to assume debt (securitized and unsecuritized) as a result of the need to chase yields and to finance necessities of living, respectively (subprime financing is back in a big way, baby)- all a direct result of The Bernank breaking markets so perversely.

Whatever can't last, won't. If you think this situation can last much longer, and it does, you're more wise/intelligent/prescient than I am.

The latest bubbles inflated by central banks are appearing closer to peak ridiculousness with each passing day. It has a definite circa-1999 or circa-2007 feel to it, but even more so this time around.

If you're waiting until there's a failed sovereign debt auction in the U.S. or EU to tell you it's time to act, you'll never get your signal, and you'll already have missed out on the massive gains that will be captured when natural market forces inevitably reassert their command of the ship.

earleflorida's picture

Ah, yes indeed... as it should be-- once the solid-gold cornerstone of the 'Great Ponzian Pyramid' is removed from the rehypothecation vaults... the 'ss\C.B Flotilla'... will silently run-deep. Leaving its port-o-call with but a subtle twilight of apostasy afterthought... farewell, the only tangible remnant of an archaic Philosopher's Stone' calling card --decoded,... `wish you were here, it's been fun'!

Whence, this Faustian admiral sets sails for the nebulous Khartoum's blue and white nile --settling destination off-course for the coventry birthplace of mankind. Giving thy surrogate iron-maiden aborted time for birthing... a more gullible and avarice generation too come?

Tis but a Trillion dollars of solid bullion gold that once held this grandest of all... this grandiose paper`mache gilded dome of broken promises, now hemorrhaging a toxic pasty ink leaking upward with a $120 trillion Dollar debt of dead pulp...  soon to be termite`d by natures call?      

caveat emptor :-))

Ponzi_Scheme's picture

I've given up on doubting. You will lose your short bet. You know the market is centrally planned and manipulated. Who is going to sell into the Bernanke put when every dip is bought ?.. I can't argue your macroeconomic fundamentals stink way worse than 1999 or 2007. I argue that the game is rigged to never fall very far, before a massive squeeze will wipe you out.

Fuck you Bernanke and your fellow hebe crooks.

TruthInSunshine's picture

It takes a strategy similar to that which Taleb employed in the following article, knowing one's staying power, and that ultimately, that which can't be sustained, won't be:


gladwell dot com - blowing up
rbg81's picture

Not sure why this is a surprise.  Many of the companies with high yields are MLPs or REITs which HAVE to return their profits to investors.  This is nothing new.  But, even with the yield, you still have more risk with equities 'cause its easier to lose your principal.  So, to some degree, the yield helps compensate you for the risk.  With bonds, at least you get your principal back in the end....theoretically anyway.

LawsofPhysics's picture

Not sustainable.  next.

john milton's picture

is this the wealth effect in progress.. (for the 1%).. others can use food stamps and eat ipads

CrashisOptimistic's picture

You guys still don't get it.

This is money.  It's a concept.  It doesn't exist in nature.  It's *merely* a concept, and concepts can be changed with no more effort than having a new thought.

Money, and things associated with money, are not going to destroy civilization because if such a thing were unfolding, new things will be thought and created with just the mind and a penstroke to stop the destruction.  All this agonizing over printing money to buy bonds is all nothing more than thought.  A major drama was created over making a decision.  Decisions are just thoughts.

This is about oil, people.  It's not about anything else.  All these shenanigans are taking place to try to combat the effects of oil becoming so relentlessly scarce.  Drilling in miles of ocean instead of just off the highway in Oklahoma.  That costs ENERGY.  Not dollars.  Energy.  Dollars are imaginary.  Joules are not.

This shit is going down.  Nothing can stop it.

neidermeyer's picture

In the "good old days" stocks with a dividend were avoided like the plague as it was seen as a sign that the growth party was over... no good r&d ideas or new product lines to put the cash into...

Xibalba's picture

I think a good'ol cap gains tax increase should do the trick....



slaughterer's picture

SShhhhh!  Your not supposed to mention cap gains tax increase until after Nov 6.  

madcows's picture

Say I invest $1,000.  It yields 6% or $60.  I then pay 35% of that to uncle Scam.... and net $39 for me.  Nothing like putting my money at risk for a whopping 3.9% return on investment.

Jason T's picture

banks will own everything.  

Dealer's picture

Money for nothin, chicks for free.

Vincent Vega's picture

There is no 'investing' anymore; just betting.

smlbizman's picture

but its the kind of betting where 3 of a kind beats ur blackjack...and nobody can win those bets...

fonzannoon's picture

no kidding unsustainable....i would call it the new temporary not the new normal.

SAT 800's picture

Oh, the new "normal" is definetly temporary, alright. Maybe we should call it the Tempormal.

Diesel Seven's picture

Nope, not true. My Bloomy states that I can purchase (in Euro denomination of course) 10-year bonds backed by the full faith and credit of Greece (and Mario Draghi) at a yield 21.47%. 

mkhs's picture

You loan money to a broke Greek, the Greek doesn't have a problem.  You gave him the money.  You have the problem.

neidermeyer's picture

Yeah , I remember those rates ,, back in the late 80's I could have gotten 25% from my local S&L ... right before they closed shop. 

Rainman's picture

CalPers somehow managed a 1% return last fiscal year. Whatever they do, do the opposite. 

buzzsaw99's picture

they manage stellar results like that by counting net contributions as returns.

SAT 800's picture

CalPers is amazing; you should read the published list of their investments some day; it goes on and on and on; they own a piece of every-fuckin retard company on the planet, and of course it's all going to shit at once. CalPers is doing what the Titanic did; Sinking slowly, but very very surely.

JR's picture

...the income-starved retiring boomers are being forced to garner income more and more via the equity market where dividends are up more than 8% over the past year?

Hey, I thought many retail investors had left because they felt “queasy” about the U.S. stock market.

Others, of course, like Aleph Blog who stayed in the market after the crash and won and is now  the all-seeing winner because apparently he anticipated Bernanke, dismisses those losers who left and went into real estate purchases ("something they understood"), etc., as those “people who don't understand investing (who) buy and sell at the wrong times. They panic and get greedy.”

The truth is that eventually stock market manipulation without reform will force the stock market to go out of business. You can’t have a market if it is a trap.

tradewithdave's picture

What a relief to have a plan for this Halloween.  Just told the wife... Instead of bobbing for apples, we're going to "Bob for Rubins".  I told her, get one of those round metal washtubs.  I'll decorate it like the Ritz Carlton.  Should be a big hit with anyone who comes dressed as Iris Mack.

walküre's picture

The real question is .. will the MUPPETS bite again?

Lots of stock to offload and with the backdrop of UNLIMITED BOND BUYING = UNLIMITED QE, the jackals just might get the MUPPETS to pile back into equities.

Kreditanstalt's picture

This works until suddenly bond buyers become bond sellers and find that the exit door is too small...

NotApplicable's picture

Bond sellers? Like they'll ever allow that!

SAT 800's picture

Love your Avatar name. Yes, you got it all right. This will be the trade of the Century, when Bond Buyers get Buyers' remorse; it's gonna get real ugly, real fast.

RougeUnderwriter's picture

Inversion spells trouble


slewie the pi-rat's picture
The New Normal Of Investing: Bonds For The Price, Equities For The Yield


and this "started" many moons ago, and is now "normal"

b/c of their "yield" many stock are desirable under zirp

robo_T usta write about this from time-to-time and i would say:  bingo!

slewienomics has also developed the possibility that with "iffy" systemics, corporations (private goobermints) whose debt is rated "not junk or not near-junk" may also be getting "perceived" as "safe";  so there may be the perception of yield and safety in their equities... in TreasuryDebtSafety;  a similar desire for these stocks here is what it think we may be seeing with this summerRally;  and the FED has not been stingy with credit, certainly to the multi-national corpos in this category

it is this perception which may allow the FED to end or curtail zirp and allow the "markets" to become less centrally-dominated and more economic...

...or at least end or curtail zirp...

SAT 800's picture

Famous Quotation from an old and honored investment adniser; "Bonds are instruments of guaranteed confistication". Why would the government give you back more BUYING POWER, than you gave them? Ain't gonna happen.

RougeUnderwriter's picture

Vegas has better odds now

SAT 800's picture

If you stick to Red, Black on the roulette wheel I'd have to agree with you.

Diesel Seven's picture

Up is down and down is up. Both equity and fixed income markets are at very risky valuations given the economic backdrop--slow or negative organic growth and lots of leverage at the central bank level to inflate asset prices. Equity valuations are assumming continued real (vs. nominal) earnings growth (not retraction), long-term fixed income price risk is scary-high, and currency markets are starting to look crazy (what's Japan done to make their currency look any less ripe for debasement versus the Euro or USD at 200% D/GDP?). Playing SPY as your friendly mom & pop retirement income machine might work for now, but don't start thinking that a dividend is a contractual obligation. Put it this way: most of the capital markets are currently like a dog turd; you can dry out that dog turd, paint a pretty face on it, and list it on ebay as a paperweight(white?) with a buy-it-now price of $9.99, but it's still a dog turn and smells like shit. Caveat emptor.

SAT 800's picture

What;s the difference between a dog turd and our President? "Eventually the dog turd will turn white and stop stinking".

youngman's picture

Look at home builders at an all time high today......but they don´t build homes anymore...nothiing close to 2007.....but hey their stocks hit a new high...and Spain up 5% today..what????  a country with 25% unemployment..and assets on banks balance sheets that have never been marked down...this is very scary...

buzzsaw99's picture

1.67% on the 10y looking mighty tasty today.

SAT 800's picture

But if I sell part of my Silver Bullion at the end of the year, and ration the "money" into a monthly budget, why is this not a "yield".? It looks like a yield, it spends like a yield; I'm not sure if it has feathers or not.

duckhook's picture

I am a bit confused by all this  finance talk so will someone please explain it all to me.

I looked up the 10 and 30 year bond pirces and yields on Cnbc.

10 year was 99.53 with a yield to maturity of 1.676,meaning a a coupn of 1.625

30 yerar was 99.01 with a yield to maturity of 2.797 meaning a coupon of 2.75

if the 10 year rallied to 105 ,the yield to maturity would be 1.197,if it rallied to 109 the yield to maturity would be .69

If the 30 year rallied to 104 the yield to maturity would be 2.557,if it rallied to 109 the yield to maturity would be 2.33

if it rallied to 114  the yield to maturity would be 2.11 and if it rallied to 119 the yield to maturity  would be 1.91

These returns look pretty juicy to me  especially  since they are guranteed by the government.I then asked my next neighbor ,who used to work in the securites industry about how I should get involved.he said that i should stick to teaching golf ,that the returns are anything but guranteed and that eventaully all of these bonds are going to go to 100 and the only money made would be the coupon rate.Now i am really confused.this article assured me that i could make a good return by buying bonds here  and then My neighbor tells me that they are eventually going to worth only 100.What goes on here ?does not the government guarntee these bonds and therfore my profit is guranteed?






falak pema's picture

so levitated stocks are now guaranteed as LOW risk and hi-yield vehicles by the FED QE pump; and Bonds are the HIGH risk asset, as the liquidity pump is so primed all money is debased; government and munis most of all. 

We protect the private sector assets 'cos thats where the oligarchy money is, BUT we can ONLY pay dividends in recession times and keep the artificial levitation thanks to government money pumping that generates STAGFLATION; downside: all governments bonds are worth no yields via monetary debasement, so you bet on them at your own risk. Some can yield big as there are safe havens where Oligarchs also invest their cash. Its a tricky game of betting blind as the oligarchy herd moves fast its hot money! 

The new privatisation of profits and socialisation of debts meme has created this topsy turvy anomaly in a world on the brink of hyperinflation and deep into the trough of true economic depression for the 99%; that the oligarchy class calls "controlled recession".

We are in a Fort Apache economy, awaiting the US cavalry to come save us!

All must wear a yellow ribbon to show they are on the right side of the divide!

If you don't you're a heretic and its Gitmo blues in the doghouse for you!