So, whose crying now?
The plunge in income, (see NYSE new lows list) was brutal!
As a result, many income investments are now at incredible yeilds.
Even as the bond has stabilized, but Fed Funds stayed the same.
Now you might argue that the "spreads" are still the same, and that might be true in some cases.
But still, income that has some risk attached to it, could out-perform risk free income, ie US Bonds, in an improving economy.
Examples, REITs, Junk, Preferreds, a lower quality Munis.
BUT, STOCKS WILL NOT DO WELL IN AN ENVIRONMENT OF RISING RATES! THEY NEVER DO.
EVERY EQUITY PLUNGE IN HISTORY HAS BEEN PREFACED BY THE SAD COMMENT: "AND THEN INTEREST RATES ROSE!"
AND THOSE NAZZI "LOTERY TICKETS?" FORGET ABOUT THEM!
A lot of the attraction of the NAZZ has been the one percent solution Mr G has imposed on savers.
And a 5%+ ten year bond could be the kiss of death for NAZZ hotties. (Sorry Google!).
So, I expect a 5% bond to mean about 9000 on the Dow, with
every percent up subtracting another 1000 points on the Dow.
To wit: 6% bond equals an 8000 Dow. 7% bond equals 7000 Dow. 8% bond equals 6000 Dow. Etc. Etc. So, a 10% bond equals a 4000 Dow? You bet! Sounds reasonable to me!
THE POINT IS RATE HIKES ARE THE DEATH OF "NO YEILD" STOCKS! ESPECIALLY ONCE YEILD ALTERNATIVES TO STOCKS ARE AVAILABLE. MOM AND POP WILL FLEE EN MASSE.
And, wither income?
I would expect some unpleasantness. But, not as much as with stocks.
IN EFFECT, THE "SPREADS" WILL NARROW.
MR G's ONE PERCENT SOLUTION WAS SO ODD;
THAT INCOME NEVER REALLY FULLLY ADJUSTED TO IT.
Everyone was SO completely focused on stocks.
AND, THAT'S WHY THE CARRY TRADE BECAME SUCH A NO-BRAINER! HUGE SPREADS!
But, if spreads don't narrow now? Well, show me a 10% tax free muni with acceptable risk, and I'll buy it today!
STOCKS vs. INCOME?
I SAY: STICK WITH INCOME! AND SELL STOCKS!
Postscript: Now, if we revert to the early 80's scenario of
16% and 20% primes? All bets are off!
But, a moderate interest increase now will CLEARLY be worse for stocks than for bonds.
