1959 Bonds yield flipped over Dividends', but it's just the the past

1959 年債券殖利率曾經第三次超過股票殖利率(前2次分別 1989和 1929), 而導致股市大跌 而隨即展開2年的高點震盪 

my partners, veterans of the Great Crash, kept assuring me that the seeming trend was nothing but an aberration變異. They promised me that matters would revert to normal in just a few months, that stock prices would fall and bond prices would rally.

 

原文連結

In the history of yield-seeking investments, 1959 was a seminal year — the one in which bond yields and dividend yields flipped. The question investors must now contend with is whether they have finally flipped back.

 

It may not be one of those years that has widespread recognition among armchair market historians, such as 1929 or 1999, but 1959 was a critical one nonetheless. Before 1959, dividend yields on stocks were reliably above those of bonds. This made all the sense in the world insofar as stocks were seen as a riskier way to generate income; since they don’t come with the legal obligations that adhered to bond payments, dividend yields had to be higher as compensation for risk.

 This is the simple explanation for the fact that whenever dividend yields slid to approach bond yields, as they did in 1898 and 1929, stock prices fell or bond prices rose such that the relationship between the one type of yield and the other was maintained.

歷史上只要股息殖利率一疊到靠近10年公債利率, 市場會馬上股價回跌, 債券價格漲, 1898 和1929都這樣 

It is no surprise, then, that when dividend yields approached bond yields again and actually rose above them in 1959, the old Wall Street hands had a clear prediction of what would happen. As Peter Bernstein tells it in his classic book “Against the Gods: The Remarkable Story of Risk”(風險之書: 商周出版)

 That is to say, instead of reversing, bond yields rose dramatically above dividend yields — and by 1982, the 10-year Treasury yield was nearly 9 percent higher than the S&P’s dividend payout. In hindsight, 1959 marked an epic sea change, as the below chart (which uses data from Yale’s Robert Shiller) shows:

Interestingly, opinions on what drove the shift are divided.

Bernstein’s own explanation is that rising inflation amid World War II led the fixed return offered by bonds to be perceived as risky (since inflation increases the chance that the money returned would purchase less than the money lent), driving investors into stocks, which generally compensate investors for inflation.

Yet Martin Fridson, who wrote about the flip in his own book “It Was a Very Good Year: Extraordinary Moments in Stock Market History,” told CNBC that in his opinion, there had to have been more at work, given that inflation had also been high in the past.

 For Richard Sylla, the Henry Kaufman professor of the history of financial institutions and markets at NYU’s Stern School of Business, the late1950s change actually stemmed from events that followed the 1929 stock market crash. The Securities Act of 1933 and the Securities Exchange Act of 1934 dramatically increased the information that companies and stock dealers had to provide to investors. This reduced the risk premium accorded to stocks, and it allowed advocates like William Greenough of TIAA to make the case that equities belonged in long-term portfolios, given that investors could make informed decisions about which stocks to buy, Sylla argues.

Further, the shift to earnings reports meant that investors could view earnings growth, rather than simple dividend growth, as a key component of future returns. This meant earnings were increasingly reinvested in the businesses rather than doled out as dividends, Sylla wrote in an email to CNBC.

 這句話顯示1950s 當時候大家會把股票當作跟債券一樣現金流性質的投資工具 ( 領股息) 公司會成長, 獲利成長, 估值提高 - 這個是巴菲特後來發展出來的投資概念, 1959年 巴菲特當時還未滿30歲

Yet whether increased disclosure or increased inflation anxiety led to the great switcheroo of 1959, it’s hard to argue with the lesson Bernstein draws: The past is an insufficient vehicle for predicting the future, and those who blindly bet on regression to the mean are fools with whom their money will soon be parted.

 Which brings us to the present. More than one financial commentator has noted the oddity that the now yields significantly more than the 10-year Treasury note; many have gone a step further and argued that this is the most salient case重要時刻 for increasing exposure to stocks now.

 

Could it be that those making this argument are making the same mistake Bernstein’s colleagues were back in 1959 — predicting a Harding-esque “return to normalcy” when the world has fundamentally changed? For instance, could it be that in a stagnating global economic environment, in which deflation is often a greater concern than inflation, the more-guaranteed return of fixed income merits a premium for this asset class once again? Twenty years hence, will the investors who buy stocks now in anticipation of lower yields through higher prices still be waiting?

 

“It’s very vital to ask this question right now,” as the recent shift in dividend yields and bond yields is “tectonic, potentially,” Max Wolff of Manhattan Venture Partners said Wednesday on CNBC’s “Trading Nation.”

 

Still, he argues that the recent trend is not driven by sentiment, but by central bank actions driving down bond yields, and for that reason he doesn’t think the change will endure.

 

A similar sentiment is echoed by most other market participants. As Fridson, who is also chief investment officer of income-centric wealth management fund Lehmann Livian Fridson Advisors, put it: “While you’ve got stock yields where they are, maybe the reason that they’re currently above bond yields is simply that the bond yields have been driven down to levels that don’t make sense given the economic fundamentals. That is something we shouldn’t expect to continue.”

These voices of reason certainly have a point. To be sure, unlike in the late ’50s, the current crossing of stock and bond yields appears to have been driven quite solidly by the dramatic decrease in the latter, which may suggest that something specific to the bond market might be at work. 2016 June 債券殖利率被壓低 原來是Fed 刻意造成的

Still, for those who expect everything to return to its prior state, the ghosts of 1959 must still be contended with — not only in respect to bond yields and dividend yields, but when it comes to every facet of our financial world.