Monday, October 31, 2011

Bloomberg: Bonds Beat Stocks Over Past 30 Years, First Time That's Happened Since Civil War

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If we need any evidence the past thirty years, especially the past twelve or so, have been horrid for investors, this Bloomberg article notes that (government) bond returns have actually beaten stock returns over thirty years.  Ouch.  They say stocks win out in the 'long run' but for the average person's life span, you don't want to go out forty years to get a superior return.  Obviously this is very atypical - it's the first time it has happened since the Civil War time frame! 

To be fair, yields were very high on government bonds in the early 80s/late 70s as Paul Volcker was fighting off inflation so the starting point for prices was quite low in a relative sense (prices low, yields high), but it's still an amazing statistic.

Just more evidence we should never stop QE'ing - QE for 30 years and more artificial returns will make us all mad money!

  • The biggest bond gains in almost a decade have pushed returns on Treasuries above stocks over the past 30 years, the first time that’s happened since before the Civil War.
  • Fixed-income investments advanced 6.25 percent this year, almost triple the 2.18 percent rise in the Standard & Poor’s 500 Index through last week, according to Bank of America Merrill Lynch indexes. Debt markets are on track to return 7.63 percent this year, the most since 2002, the data show. Long-term government bonds have gained 11.5 percent a year on average over the past three decades, beating the 10.8 percent increase in the S&P 500, said Jim Bianco, president of Bianco Research in Chicago.
  • The combination of a core U.S. inflation rate that has averaged 1.5 percent this year, the Federal Reserve’s decision to keep its target interest rate for overnight loans between banks near zero through 2013, slower economic growth and the highest savings rate since the global credit crisis have made bonds the best assets to own this year. Not only have bonds knocked stocks from their perch as the dominant long-term investment, their returns proved everyone from Bill Gross to Meredith Whitney and Nassim Nicholas Taleb wrong.
  • The generation-long outperformance of bonds over stocks has been the biggest investment theme that everyone has just gotten plain wrong,” Bianco said in an Oct. 26 telephone interview. “It’s such an ingrained idea in everyone’s head that such low yields should be shunned in favor of stocks, that no one wants to disrupt the idea, never mind the fact that it has been off.”
  • Stocks had risen more than bonds over every 30-year period from 1861, according to Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School in Philadelphia, until the period ending in Sept 30.   The last time was in 1861, leading into the Civil War, when the U.S was moving from farm to factory, according to Siegel, author of the 1994 book “Stocks for the Long Run,” in a telephone interview Oct. 25.
  • U.S. government debt is up 7.23 percent this year, according to Bank of America Merrill Lynch’s U.S Master Treasury index. Municipal securities have returned 8.17 percent, corporate notes have gained 6.24 percent and mortgage bonds have risen 5.11 percent. The S&P GSCI index of 24 commodities has returned 0.25 percent.

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