Remember "TINA"? "There Is No Alternative" to investing in the stock market? This paradigm was pervasive last decade when rates were zero, bond yields were pretty much zero, traditional income sources like CDs had dried up, and people felt forced into the stock market if they wanted any hope of returns.
Is this now playing out in reverse? Have you seen the yields you can pick up lately on anything from CDs (certificates of deposit) to Treasury bonds to munis and corporate debt? Everyone is buzzing about it. All week long guests on air have been pounding the table about it. The juicy yields you can get in credit now come up so often it's even sparked a new tongue-in-cheek segment Dom Chu and I have jokingly been calling "wonky, but worth it."
Heck, you can get 4% on a risk-free savings account these days. Just a couple of years ago, you'd practically have had to own FTX debt to get that kind of return. You can get 4.15% on a one-year CD from Goldman's Marcus, or Capital One! And these rates will likely go even higher after the Fed's half-point rate hike to over 4% yesterday, and if they ultimately hike another half-point or more, in total.
I totally get that this pales next to the 7.1% inflation rate, but leading indicators suggest that inflation is falling, fast, and if we're heading into a recession the stock market returns aren't going to look that great, either. In fact, it's what David Zervos at Jefferies has been recommending to clients, as he told us the other day. You can get "mid-teens" percent yield on parts of corporate credit he thinks are unlikely to default even if the economy softens.
The whole point of "quantitative easing" last decade was to force investors up the risk curve, out of cash and into the stocks and riskier debt in the hopes of stirring higher monetary velocity, funding corporate start-ups, and helping consumer spending via the "wealth effect." Now, if we're "quantitatively tightening," shouldn't we expect that whole process to run backwards? Draining liquidity out of start-ups and financial markets, back into cash so as to quell any further inflationary pressures in the economy?
You have to be pretty optimistic about earnings and the economy to think the stock market is worth the extra return it could offer over 4% risk-free assets right now. For the first time in recent memory, There Is An Alternative to the stock market.
See you at 1 p.m!
Kelly
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