It is often noted that bond people are the smart ones compared to stock people. I am guessing that is at least in part because they are “usually” right. And by right I mean have more money, less competition, and time horizons are a trading lifetime. Think Buffet.
So there are few things that I see wrong with this chart. I do not know the exact figures but at least in 2007, the bond market was almost twice as big in terms of dollar amounts. (It was pointed out by a reader that this was a poor barometer of examples, I agree. It was another way of saying that this chart lacks context, which is ultimately the most important part.) The point is that What do the flows look like since it crossed over in 2009? I am not sure about bonds but in general I would say that equities have risen on lack of selling and shorting at bad prices.
The government, through actual dollars and the pulpit, have effected both markets. When I see charts diverge like this, I am reminded that there is way more money out their than I can imagine and we have some great story tellers.
I do not think we should be asking which market is right. We should be asking who are the participants? How much does it cost, dollars and media time, to move the respective market? These answers will give us an idea of how they react when things change. This relationship already happened, time to anticipate what happens next.
I have a couple friends who are bond brokers and I am surprised that they still have a business. Who wants to lock in a rate these prices? Their response to me is; institutional mandates and individuals are scared of losing money in cash.
Any of my smart bond readers want to chime in please do.
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