Low Yields are Now the Norm
KCR recently came across a fabulous tweet by @charliebilello that caught our attention. In his tweet, he pointed out that the dividend yield of the S&P500 was at its lowest point since the stock market bubble of 2000. With the treasury bond market offering so little in interest rates, it begs the question: Is there anywhere to find yield today?
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In his 2020 letter to shareholders, Buffett stated, “Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.” We quote him extensively in our piece examining the inflation of the 1970s and believe the charts below tell the story with brutal clarity.
The S&P500’s dividend yield is approaching the lowest level in over 40 years.
Unfortunately, yield-starved investors seeking income securities have few alternatives for their savings accounts.
Here is the nominal yield on 10 Year US Treasury Bonds.
In the dot.com bubble, you could buy risk-free 10 year Treasury Bonds with ~7% interest payments.
Today, those same bonds offer virtually no return in exchange for record duration risk. As we explained, this issue is magnified due to stocks with record equity duration.
Market Bubbles In Years Past Offered High Real Yields, Unlike Today
A recent article from MarketWatch noted that “…the $1 trillion that has flowed to global stocks in 2021 is bigger than the last 20 years combined” – we’ve posted the stunning image below. We believe this is the apogee of behavioral errors that plague investors’ returns.
These record inflows are happening at stock prices that started at the 2000 dot.com peak valuations. These flows have driven equities to multiples never before seen.
For a quick rundown on the power of the Buffett Valuation metric, see our work here, here, and here.
Useless for timing, valuation does, however, flag investors to the risks of paying too much.
The cost of “buying high” in 2000 and 2007 served up terrible losses for investors as the market swung from greed to fear.
We can only guess what they will be whenever the next correction comes.
The chart to the left is the real return on 10 Year US Treasury bonds today.