Inflation

Stocks versus Bonds

Has the inflation dragon retired to his cave with the latest annualized 2.7% increase?  So far the long end of the debt market hasn’t thrown in the towel with the bell weather 30 year Treasury bond breaking the current yield level of 5%.  Worries are abounding with inflation determined to remain along with budget deficits massively growing as far as the eye can see.   

If history is any guide the first sign of trouble in the equity markets the Federal Reserve will turn back into doves creating a floor instead of ceiling of 5% for the 30 Treasury bond.

What does all of this mean for long term investors??

DYI’s Earnings Yield Coverage Ratio - [EYC Ratio] as the stock market is close to my crash alert level under 0.50!  Today 7-16-2025 the Shiller PE stands at 38.03 and Vanguard’s Long-Term Investment-Grade Fund at 5.48% pushing the EYC Ratio to 0.53 any number below 0.50 it is a high probability bonds out performing stocks.

The S&P 500 index with its tiny dividend yield at 1.24% as compared to Vanguard’s Long-Term Investment Grade fund at 5.48% is a 342% difference in yield.  Shiller PE at 38 investors is not just expecting but demanding earnings growth way beyond anytime in history to maintain the expansion of equity prices.

Bottom line:  Long-Term high grade corporate bonds (reinvesting the interest) bought today go to sleep like Rip Van Winkle waking 10 years it is likely to outperform the S&P 500.  When DYI’s EYC Ratio drops below 0.50 (low 0.40 level) your probability is so high of outperformance the expression is “shooting fish in a barrel!”