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Sunday, December 3, 2023

A Chart for the Ages

Cullen Roche as soon as stated, “The inventory market is the one market the place issues go on sale and all the purchasers run out of the shop….”

This habits might sound irrational, however it’s comprehensible when you think about how averse persons are to dropping cash. The quickest approach to make the ache disappear is to promote, whatever the irreparable injury you could be doing to your long-term returns.

This aversion to losses, apparently, doesn’t carry over to the inventory market. The bond market may be the one market the place prospects run right into a retailer that’s on fireplace. I’m unsure I’ve ever seen a chart like this. More often than not, whole belongings will observe the present worth. If one thing goes up, buyers pile in. If one thing’s happening, buyers rush out.

Lengthy-term bonds are down 10% this yr and are in a nasty 45% drawdown. And but, buyers preserve piling in, plowing $16 billion YTD into TLT. The one ETF that’s taken in additional belongings this yr is VOO, Vanguard’s S&P 500. The constructing may be on fireplace, however buyers know that finally, the sprinklers will activate and the hearth engines will present up.

Jurien Timmer tweeted this chart, saying:

“With each tick larger in yields (and decrease in length), the risk-reward of proudly owning Treasuries improves. The scatter plot beneath reveals the anticipated return for the Barclays Mixture index if the yield goes up 100 bps (horizontal) or down 100 bps (vertical). We have been on the decrease left and at the moment are on the higher proper. At a length of 6.2 years and a yield of 5.2%, the return upside is +11.4% and the return draw back is simply -0.9%. Only a few years in the past, that very same tradeoff was +7.1% vs -5.0%.”


When charges went from 0 to five, there was no earnings to buffer the autumn. Traders have been swimming bare. There’s no telling how excessive charges will rise, however this time, buyers are at the least carrying a life jacket.

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