Bloomberg.com – Steinhardt Says Bonds ‘No Place to Be,’ Favors Dividend Stocks
Investors should avoid bonds and buy stocks in companies paying high dividends, and the Federal Reserve should reconsider its low-interest-rate policy, according to Michael Steinhardt, whose hedge funds returned more than 20 percent a year for almost three decades.“Bonds are no place to be,” Steinhardt, 71, who is now chairman of New York-based WisdomTree Investments Inc., said in an interview today on Bloomberg Television’s “Money Moves” with Carol Massar. “Equities are cheap by historic standards. Equities that pay high dividends relative to bonds, relative to the stock market, I think that’s a good place to be.” Phone stocks and utilities offer the highest dividends among 10 industry groups in the Standard & Poor’s 500 Index, with yields exceeding 4.2 percent. That compared with a yield of 2.04 percent in 10-year Treasury notes and 2.02 percent for the entire S&P 500. The S&P 500 rose 12 percent during the first three months of this year for the biggest first-quarter rally since 1998 as earnings beat analysts’ estimates for a 12th straight quarter. The gauge is trading at 14.3 times reported earnings, below the average since 1954 of 16.4, according to data compiled by Bloomberg. Treasuries slipped 1.3 percent in the first quarter while corporate bonds increased 2.4 percent.

Investment News – Time to shift to stocks from bonds: Loomis Sayles’ Fuss
Legendary bond investor says investors should swap market risk for company risk
The looming threat of rising interest rates has legendary bond investor Dan Fuss thinking it’s a good time to move away from fixed income and into stocks. “We’re in the foothills of a gradual rise in interest rates,” said Mr. Fuss, vice chairman of Loomis Sayles & Co. LP and manager of the $21.2 billion Loomis Sayles Bond Fund (LSBRX). “Once they start to rise, you’re probably looking at a 20- or 30-year secular trend of rising interest rates.” When interest rates go up, the value of existing bonds drops as new bonds are issued at the higher rates. The unemployment rate is going to be the main factor in when the Federal Reserve Bank starts to raise interest rates in earnest, Mr. Fuss said.

Comment

Larry Fink hates bonds. Warren Buffett hates bonds. Guggenheim Partners hates bonds.  Jeremy Siegel has hated bonds since the early years of the Clinton administration (1994). Nassim Taleb thinks every human on the planet should be short bonds. Leon Cooperman wouldn’t be caught dead owning bonds.  Above are stories showing Michael Steinhardt and Dan Fuss hating bonds.

The table below shows that 90+% of economists are bearish on bonds in a typical month.  The latest monthly survey (released yesterday) has 97% of economists (68 of 70) bearish on bonds.

The world is very bearish on bonds.  It is hard to make a case for value in the bond market.  Our only concern is this bearishness is well understood and has been priced into the market for a while now.  The long bond has had a 34% total return in the last 12 months versus a 5.1% return for the S&P 500 over the same period. The bond market has also outperformed stocks over the last 30 years for the first time since the Civil War.

At some point the bond bears are going to be right. But after a decade of crying wolf, it is hard to listen to these calls.

Click to enlarge:

Source: Bianco Research

Category: Fixed Income/Interest Rates, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

21 Responses to “More Bond Haters”

  1. MayorQuimby says:

    What they espouse and what they do are often very different from on another.

    Most divvy large caps pay .5 to 2.5 percent divvies. That is abyssmal. For all that below the rate of inflation cashflow, you get a metric ton of RISK. The market is an absolutey terrible place to be at these prics. The only reason to be long is to be long Fed liquidity but they cannot ease with gas prices and food prices outpacing wages and in the stratosphere. So…you sell the market or sit out the downside. I believe peak earnings are here right now and we should drop into the fall. Best of luck to all.

  2. MayorQuimby says:

    Add: I don’t like bonds either at these prices but would say we could see another wave of buying the longer maturities.

  3. baychev says:

    The Bernank likes bonds. He has the largest purse as well and that is all that matters to bond prices.

  4. streeteye says:

    If you’re a ‘hold to maturity’ investor and you have a bond yielding 3%, you’re going to make…3%. The only way you’re going to make more is if you sell to a greater fool.

    That’s nominal. And inflation is running 2%. And then there are taxes and fees. And always a chance of default.

    I don’t know if there’s a gold or tech bubble but there’s clearly a bubble in government paper.

    Maybe the economy’s going to tank, and you could sell to a greater fool. But you’re making a market timing call over a pretty compelling relative value argument at this point.

  5. MayorQuimby says:

    The Bernank is ultimately powerless. When the market figures that out, his purse will runeth over.

  6. MayorQuimby says:

    Street- I’m *not* making a timing call. I’m making a VALUE call and there is no value at these prices. When the Gap has it’s jeans on sale for $35 I know it is a good deal and I buy. I might also buy when they are $40 if I need jeans. But when they are $60 I do not buy.
    With stocks, the value is not in wearing them like jeans but in flipping them or collecting divvies. You are suggesting inflation persists. How can it? The only reason the price for anything is up here is because of TRILLIONS in Fed money injections. But prices are going to revert all the way back down once the injections stop. So for the market to rise and inflation to persist, the Fed will not only have to do QE 3 but 4,5,6 etc. since the economy is not creating enough capital to keep the ponzi going.

    If they do that, oil goes to the moon and it is game over. So, imo, it is game over right here, right now.

  7. VennData says:

    The Fed took QE3 off the table, while assuring people they won’t raise rates for a few years. The market has a little correction.

    They did it during a seasonally bullish period where actual bullishness was high, before what should be a good earnings season. They are watching the market reaction. They will say ‘see, we took QE3 off the table, and the market dealt with it.”

    Next up, more constructive comments on the economy, over then next twelve eighteen months, as they slowly reverse the language, or as people call it, “the Open Mouth committee.”

    They are doing what they should be doing. Hats off to the Fed. Those smart guys cited above know this, dismiss them at your peril.

  8. MayorQuimby says:

    QE 3 will not happen but I think they will extend operation twist through the election.

  9. ByteMe says:

    according to Michael Steinhardt, whose hedge funds returned more than 20 percent a year for almost three decades

    Anyone else see a problem here? What are the odds of this being true?

  10. streeteye says:

    I buy jeans at Target for $15 so that’s my definition of value LOL.

    For 30 years every time the economy falters, the Fed prints. Why anyone would expect injections to stop is the mystery. Sometimes the ECB seems about to miscalculate, but then they came through with LTRO when push came to shove.

    Steinhardt…I think his returns would have been higher but he had a big drawdown toward the end -

    http://books.google.com/books?id=celqyFysNq8C&pg=PA195&dq=michael+steinhardt+variant+perception&hl=en&sa=X&ei=laaJT_37CMq30AGyweXWCQ&ved=0CDIQ6AEwAA#v=onepage&q=michael%20steinhardt%20variant%20perception&f=false

  11. Rich Bernstein has had this right (among many other things) for years.

  12. jaytrader says:

    I can imagine all of these guys on the same Telecom and Tech Band Wagon a decade ago.
    Listen….Stocks are sexier than bonds. They have higher fee structures and no one ever buys bond research on Wall Street.
    Its purely a play on getting the lemmings of society to support the equity structure on Wall Street. I am sure when the 10 year t-note is hugging 75-100 basis points these same charlatans will say that equities suck and bonds are where its at…when that happens its pretty safe to go into equities.

  13. JasRas says:

    The call of the analyst and strategist is not the call to pay attention to. The actions in the market are concerning though. It’s fun to make fun of these guys at times, but make decisions solely on their calls?? That would be amateur.

    What has me at alert about fixed income: When you have the strongest inflows into fixed income mutual funds since 2009 in the strongest performing quarter for equities in a long long time, I find that to be a contrary indicator that perhaps fixed income’s time in the sun is coming to a close. Is that a call for immediate losses in fixed income? No? Will you be hurt holding individual issues to maturity? Not likely…but the average Joe owns fixed income in mutual funds and that could be a painful lesson that the general public is not prepared to experience.

  14. Simon says:

    It is easy to believe that there is a huge confidence fraud being perpetrated by the purveyors of paper currency and their enablers. Do I need to say who they are? Comparatively very few people understand even the basic operations of the worlds currency handlers. And yet they do notice how in any group these people are the best dressed and most relaxed. History can teach us a little. It tells us that all good things, esp. the too good things, do eventually come to an end and that the survivors, looking back, can not believe how they were so badly taken in. So don’t expect something large enough to wreak great havoc to be east to spot. Just like in the Truman Show Jim carry doesn’t fully realize the fraud perpetrated on him until he bumps his boat into the wall of the sky dome over the set he lives in. Additionally in reality all or at least the cast majority of the actors are equally unaware of what it going on and what could happen.

  15. Molesworth says:

    @Simon,
    Re: worlds currency handlers
    Can you please elaborate a little more?

  16. Futuredome says:

    The FED prints nothing. They are just liquidity enablers for banking to “print” so US treasury. When is this board going to “get it”. The plain ignorance is amazing.

    These rates are the market rate. They don’t care about the FED. They simply see no reason to lift rates. Start surging back to healthier economy, the numbers will rise faster. Nothing more or less.

  17. [...] The long bond stubbornly refuses to sell off despite all the haters.  (chessNwine, Big Picture) [...]

  18. theexpertisin says:

    For most Americans, this presentation is meaningless.

    In our debt ridden, spend all your income on trinket society, a growing majority of folks could care less about saving a penny.

    Poorly educated in schools about things financial and personal responsibility, they go merrily on their way spending, assuming the government will take care of them later on.

    Dividends? Bonds? Ha.

  19. Moss says:

    When they speak of bonds, seems like they are referring to 30 yr US Government paper.
    There are a multitude of bonds with different duration and numerous issuers.

    They never talk about the demographics as a source for demand, look at Japan. If they can print they will print.. that to me is the reason to stay away from bonds, simple currency debasement. The US can not default, they can have their ratings downgraded for sure. That seemed to whack equities as the collateral used by all the banksters and other ‘professionals’ to leverage had a margin call.

    When Europe melts down where will all the $$$ go? Apple?

  20. David Merkel says:

    For the fundamental case for lower yields on the long end:

    http://www.hoisingtonmgt.com/pdf/HIM2011Q4NP.pdf

    They have sent out the first quarter update by e-mail; it should be posted at their website soon.

  21. Woj says:

    Love the site!

    Here’s my take on the bond haters:
    Bonds Remain the Contrarian Play
    http://bubblesandbusts.blogspot.com/2012/04/bonds-remain-contrarian-play.html