Cash Yields Highest Since Lehman
The Wall Street Journal's "Heard on the Street" column yesterday featured a brief entitled, "Would Cam Newton Buy Stocks Now? The TINA trade, in which there is no alternative to stocks, may be over as investors can finally earn something in cash-like securities." With a chart entitled, "Cash No Longer Trash," they write "The phenomenon most responsible for the epic bull market now in its 10th year isn't FOMO -- fear of missing out -- but TINA -- there is no alternative. While there has been plenty of debate about exactly how unorthodox monetary policies like quantitative easing helped the economy, it is no mystery how they boosted stock prices. The lousy return on riskless assets such as Treasurys practically forced investors to pay up for riskier ones.... The three-month Treasury bill, which has never offered a negative annual return based on data since 1928, saw its yield plunge from nearly 5% in early 2007 to zero by early 2009. As it essentially stayed there, the S&P 500's annualized return between 2009 and 2017 was a whopping 15.2 percentage points higher than that of the bill ... but the performance gap during the preceding 80 years had been a far more modest 7.3 percentage points. In other words, the opportunity cost of sitting on your hands was less than half as much. During 29 of those 80 years bills actually outperformed stocks by an average of nearly 15 percentage points." The piece explains, "With the cash-like instruments now yielding 1.93%, their highest since the collapse of Lehman Brothers, worrywarts can once again earn at least a bit of money on the sidelines. They may do even better than that in relative terms given the fact that stocks are now well into the most expensive decile of valuations compared to their long-run average when measured by Professor Robert Shiller's cyclically adjusted price-to-earnings ratio.... Mr. [David] Tepper noted in January that he believed bond prices remain key to stock values and that, at that point, stocks looked 'cheap.' But yields have risen meaningfully since then, while stock prices are at the same level. Mr. Tepper does seem to be diversifying, putting some $2.3 billion of his own money into an entirely different asset: the Carolina Panthers."
