Originally Posted by haha
I tend to think that this will be temporary. This in no way implies that stocks overall are cheap; I don't think they are. Only that bonds are way expensive. If we were comparing hghly speculative companies' stocks vs. their bonds perhaps a case could be made to prefer the bonds. But we aren't. JNJ is blue chip; NuStar (NSH, GP of NuStar is one of my largest holdings) and Magellan will prosper as long as there are liquid fuels to be put into their pipes. It may be though that the aging population of retirees will require a higher risk premium, which from my POV is all to the good for one who is primarily a stock investor over time. Remember back in 1999 when that Glassman idiot who wrote for the Washington Post stated his opinion that there should be no risk premium at all?
These tidal movements can go on a long time, but they will very often eventually go from one absurdity to the opposite absurdity.
I am torn. If the markets are correctly predicting an extended period of no growth and moderate deflation in the developed countries. Then there will be no growth in corporate earnings (corporate earnings are already pretty high in relationship to GDP) and dividends, which is to me the sole reason to invest in stocks as opposed to bond. In this case then investors are correct to demand a risk premium for stocks.
Of course this assumes a level of intelligence and rationality in the market. Frankly, after the market gyrations of the last few years I am having a difficult time writing rational and market in the same sentence while keeping a straight face. On the other hand it wasn't that long ago I was predicting high inflation and now I am worried about deflation, so my investing IQ is nothing to brag about.
I am with you HaHa stocks aren't cheap on absolute basis, but relative to bonds they are . One observation that Josh has pointed out that is interesting is this.
The M* Dividend newsletter has 2 100K portfolios a builder which consists of traditional dividend champions (JNJ, UPS, Sysco (SYY), Clorox, Wells Fargo (well it use to be) bought for the prospect of future dividend growth and another portfolio the Harvest consisting of high yielders like Nustar, Magellan, KMP, MO, and some good REITs like Realty Income O.
The higher yield of the Harvest portfolio has meant it has performed much better than the builder portfolio up 13% vs 3% for the year, even though builder has a lot more blue chip stocks and is less risky. So I am having a hard time reconciling the equity income investor demand for high yield regardless of risk vs the bond investor who seems obsessed with safety.