Bond Returns - Yield Matters

Mr Gross opens his piece with the observation that bonds have outperformed equities for much of the past 30 years, supposedly undermining the notion that equities' higher risk will be rewarded with higher long-term returns. He neglects to mention that stocks posted double-digit returns during that same 30-year period, a level of return that in no way undermines the 6%-7% long-term trend for real returns. Stocks failed to outpace bonds over the last 30 years because long-maturity US Treasuries offered yields of nearly 15% in 1982. That unprecedented yield produced a return that is mathematically impossible to reproduce given the current yield of 2.54% for the 30-year Treasury bond.

David Fuller's view This assessment is absolutely correct, in my opinion. Record low government bond yields are a bubble, which will eventually burst as the US succeeds in inflating away a significant proportion of its massive government debt. Meanwhile, equities remain in a valuation contraction phase which commenced in 2000.

This item continues in the Subscriber's Area.

This valuation contraction is likely to persist for a few more years, as I have said before. However, Autonomies and high-yielding multinational companies should continue to outperform during this phase, more often than not.

I commend the rest of Michael Jones report to you; note the opening graphic comparing real returns.