Others are beginning to see a possible role model for the 2011 economy and market in the 1958 recession and bear market. Mark Hulbert is pondering the same question of what it might mean when stocks pay higher dividend rates than the ten year Treasury note yields. The Dow is currently yielding 2.8%, the SP500 2.2% and the ten year note 2.o%.
You'll be thinking I'm a Peter Bernstein fanatic in view of my recent discussion of his ideas on portfolios for modern allocators, but I reviewed one of the final publications before his death on the 1958 stock and bond yield inversion in November and December 2008.
Hulbert and Asness see the bond/stock yield reversal being due to increasing stock volatility then and now, but I see it another way. 1958 was a severe recession and the first in living memory in which inflation existed and got worse. (See the recent post on ASA.) Most people in 1958 thought that it would be bad for stocks if interest rates rose. But rates did rise and growth stocks roared up out of that 1958 low up to the 1966-73 highs with bond rates well above the Dow dividend rate. I think that's what we're going see very shortly in 2011: a reversal up in bond yields and a breakout bull market in growth stocks and gold stocks.