Friday Vigilant Charts
People enjoy losing money in bonds much more than they enjoy losing money in stocks.
Bonds seem to get more attractive as they go down (yields are higher!) while stocks seem to get less attractive (something must be wrong!).
Paper losses in bonds feel like an opportunity cost: Just wait it out and you'll make it all back.
Paper losses in stocks feel like a real cost: The money is probably gone forever.
Imagine, for example, how you'd be feeling if the stock market was in the throes of its biggest selloff since the 18th century — because that's what's happened in bonds this year.
Equities have belatedly taken notice, falling this week to their lowest level since May.
Bond yields were also lower on the week and the combination of lower stocks and lower bond yields would normally be considered a harbinger of a recession.
You wouldn't know it from this week's GDP data, however: The US economy grew 4.9% in Q3, far above what anyone thought was possible at this presumably late point of the cycle — the much-predicted recession seems as far off as ever.
GDP was admittedly inflated by inventories and government spending, but the eye-popping headline number will keep the Fed vigilant.
The market is feeling increasingly vigilant, too: Government bonds haven't gotten this much attention since the Duke brothers tried to corner the market for orange juice futures.
The long period of near-zero rates and effectively free money is feeling more and more like an aberration.
Are we in for a return to the greed-is-good 1980s then?
Let's check the charts.
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