Everything in life is relative. In markets, it works the same way.
“How could someone possibly want to own these bonds that pay negative yields”?
Well, what’s the alternative? Crashing stocks? Collapsing energy commodities? It’s all relative.
In my experience, when assets are in strong uptrends, some might call those “bull markets”, they don’t just do well on an absolute basis, but they also tend to outperform their alternatives. In the case of stocks, you have Bonds and Gold that are two other very popular places to allocate capital.
The Chart of the Week has to be the Nasdaq 100 breaking out of a multi-year base relative to US Treasury Bonds (Blue Line). I also included the Nasdaq relative to Gold, which has yet to complete this basing period (Black Line):
The way I see it, if $QQQ / $TLT is above all those former highs from the past few years, the responsible argument is that this is the beginning of a new bull market, and not the end of an old one.
The fact that stocks haven’t even broken out yet relative to gold also points to this cyclical uptrend still being in its infancy stages.
Ok, so what if both stocks and bonds fall together? This chart can still go higher. Same with stocks and gold, right?
Yes. This is true. And all of that is certainly possible. It’s just that the weight-of-the-evidence suggests that is NOT the bet we should be making. In fact, betting on the outperformance of stocks over bonds moving forward, and potentially stocks over gold in the near future as something we should be watching closely, appears to be the best approach.
This chart above points to us being closer to a new bull market for stocks and not near the end of an old one. The fact that people get upset, and their blood pressure rises when I say that, supports my case even further.
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