Thread: Bond vs. Stock Market Perform. Suggests Secret Money Printin

Bond vs. Stock Market Relative Performance Suggests Secret Money Printing

2010-09-04 — zerohedge.com

This is very very interesting. We may have a "smoking gun" here in terms of surreptitious market propping (by the Fed and cohorts).

The first chart in this is what you want to be looking at. Note the "divergence" between stocks and bonds near the end (for bonds, downward means bonds are in favor... the opposite is true for stocks.) The chart shows both bonds and stocks are relatively "in favor", with stocks staying unusually lofty.

The analyst discussion about what is going on here is hogwash. Of course, money has to be in EITHER stocks or bonds, assuming it isn't going somewhere else like gold (but if this was happening in a big way, BOTH stocks and bonds would be crashing).

How can it be going into both at the same time? One word: printing.

I suspect what is going on here is that there is a huge amount of money (printing) being poured into the Treasury market by the Fed (only some of which they've fessed up to); and at the same time, also a significant amount going into the stock market, to keep it from crashing horribly like 1932.

http://bankimplode.com/viewnews/2010-09 ... nting.html

Why The End Of The 'Equity Cult' Means Trillions In Upcoming Outflows From Stocks

by Tyler Durden
09/03/2010 14:10 -0500

Citi's Robert Buckland is out with the must read report of the weekend, especially for all the optimists who believe that despite the ongoing depression (and as many have demonstrated, all the talk about a double dip is moot, as America has never left the depression, or as Rosie calls it a period of prolonged economic subpar activity: the latest NFP number merely reinforces the theme of economic deterioration), and despite the 17 weeks in retail equity outflows (which would be a contrarian signal if there was hope that retail would ever feel safe enough to return in stocks. After nearly 5 months of no change in trend, the debate can be put to rest, if at least for 2010) there is still hope. There very well may not be - Citi has just pronounced the "Equity Cult" dead: "It has taken 10 years, and two 50% bear markets, to reverse this cult. European and Japanese equities are already trading on dividend yields above government bond yields. US equities are almost there as well. An immediate reincarnation of the equity cult seems unlikely. Global corporates, especially the mega-caps, rushed to exploit cheap financing as the equity cult inflated. They have been slow to redeem equity now that the cult has deflated. Equity oversupply remains a drag on share prices." And as more and more companies and investors shift to a de-equitization theme, the trendline in allocation for the US pension assets will soon revert to that seen when the "Equity Cult" began, or roughly 20% of all assets, with bonds taking on an ever greater precedence of asset allocation (incidentally the UK is already back to the equity/debt relative investment levels of the early 1960s). What does this mean for capital flows? "A reduction in equity holdings back to pre-1959 levels (around 20% of total assets) would indicate considerable selling pressure to come. For US private sector pension funds alone, that would imply a further $1900bn reduction in equity weightings. The evidence suggests that there could still be considerable institutional selling to come."

So let's recap what the medium- and long-term trends for the market are:

$2 trillion in equity sales from pension funds alone as capital flows normalize now that the "Equity Cult" is dead
A seemingly endless push into fixed income by an aging demographic meaning billions more in ongoing monthly domestic stock mutual fund redemptions
Hedge funds which are underperforming the market massively, and which will see an explosion in redemption letters as the end of Q3 approaches
An inevitable change in the tax regime over the next 4-5 months, which as Guggenheim pointed out, will force investors to sell billions in stock to catch a sunsetting beneficial capital gains tax.
And yet what happens - the market surges on a negative NFP number that was negative but better by a factor of noise, compared to whisper expectation, as robotic traders pick up on the positive feedback loops to take the market higher one more time as soon everything collapses.

For all those who believe in 17x forward P/Es (expecting a 20% rise in corprate earnings in 2011 with a flat GDP indicates a serious overdoes on medicinal hopium) - Good luck chasing the bouncing ball.

For all those others, who feel like micturating upon the grave of the "Equity Cult" here are the highlights from the Citi report.

Bond vs Equities - Then and Now (this will be familiar to all those who have read Albert Edwards' recent pieces):

In July, global equities rebounded despite continued falls in government bond yields. This defied the strongly positive relationship between equities and bond yields seen since 2000. Many equity investors worry that this decoupling will be resolved by the bond markets being proven “rightâ€