Risk Aversion in Equity Markets

David P. Goldman is one of my financial gurus. Here he goes through a rather elaborate explanation to come to the conclusion which is the title of this post. A lot of people who are not economists are saying that capitalism is broken. I have a great deal more confidence in men like Goldman who actually watch what capital is doing and can explain what’s going on, instead of looking at the price of gas, panicking and listening to politicians blame each other’s character.

This is one chart among the many that makes sense to me.

Goldman says..

It is a bad time for the market when utilities trump other sectors, but they did so during the past two years (technology came close, but without Apple would have lagged far behind). Shown in Exhibit 2 are price returns only; when dividends are included, total returns to utilities rise by another 8%, bringing utilities’ two-year returns to 30%.

Another sign of times is the fact that utilities and consumer stables traded in lock step with Treasuries during the past three years – a noteworthy break from past trading patterns. Exhibits 3 and 4 below show a close relationship between bonds and the stocks with the most stable cash flows, namely utility and consumer staples. The scatter graph of bond yields against stock prices in these two sectors shows a more-or-less straight line relationship.

I’m looking for some co-hosts to sign on and be authors. If you have a good grasp of the sort of thing Goldman is saying, you could be my editor for Money & Trade. In the meantime, you can see that the handbasket is roomy and Hell may not be as close as it seems, unless you’re in mining.

Speaking of mining, now that I think about it, I did not do so well in that sector. Based on what I was hearing about China’s demand for copper in their massive electrification plans, I bought Southern Copper (SCCO) and BHP Billiton (BHP) earlier this year. Cost me. Hmm.


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