Eoin Treacy's view Following a number of discussions with other investors and at The World Money Show last week, I got to thinking about the relative performance of various asset classes over long periods of time. This led me to review a number of charts this morning which I believe are helpful in illustrating secular bull and bear markets.

I have not previously been able to create a chart of the spread between US 10-year Treasuries and the yield on the S&P500. However, following a good deal of tinkering this morning I achieved this feat with Bloomberg and have been able to import it into the Chart Library. This chart starts in the early 1970s where the average spread of Treasury yields over the S&P 500's yield ranged between 2 and 4%. The spread spiked to 10% in 1981 and has been trending lower since. The 2% area offered a floor until 2007 and has subsequently represented resistance.

Market historians will testify that following the Great Depression investors demanded an equity yield well in excess of that on Treasuries to compensate for the perception of additional risk in the stock market. Unfortunately, we do not have total return data that goes far enough back to illustrate this point.

On two occasions since 2008, the S&P500's yield has exceeded that of US Treasuries. Today, investors are seeking a safe haven in US Treasury liabilities because of the perception of risk in the stock market and other assets. Two burst bubbles in a decade, increased volatility, malfeasance in the banking sector and deteriorating governance have all taken their toll on confidence. However that is where the comparison between the post war era and now ends.

The US government is heavily indebted, has yet to propose, not to mention implement, a program to close its deficits and remains in a low growth environment. In contrast the USA is replete with globally oriented corporations that dominate their respective niches, are flush with cash and are not overly influenced by domestic considerations. It is not too difficult to imagine a situation where investors will begin to demand additional yield to hold government bonds rather than equities. A sustained move above 2% would suggest a change in risk perceptions.

This ratio of the S&P Total Return Index / Merrill Lynch 10-year Total Return Index shows the above data slightly differently. Stocks outperformed bonds by a small margin until the early 1990s. >From 1994, the S&P 500 total return accelerated relative to that of US Treasuries and has underperformed since 2000. This comparative chart from Bloomberg has somewhat longer history.

Fullermoney subscribers will be familiar with the Dow/Gold ratio. Here it is since 1920 in a log scale. This scaling helps to depict just how large a change in the constituents is required to move the ratio when in single digits. Gold underperformed from 1980 until 1999 and has outperformed since. Previous lows for the ratio have been in the region of 2.

In the context of a secular outperformance of gold relative to the Dow Jones, it is also worth thinking about how gold performs relative to Treasuries. This long-term log scale chart of the Gold / Merrill Lynch 10-year Total Return Index ratio trended lower from at least 1982 until 2001. Gold has outperformed subsequently and remains in a consistent uptrend. While US Treasuries are viewed by some as safe haven assets, gold has outperformed over the last decade on a total return basis and nothing has happened to question the persistence of that condition.

Gold continues to look likely to outperform both the S&P500 and US Treasuries over the medium term. While US Treasuries continue to attract investor interest, their continued outperformance relative to stock markets is far from certain.