1/21/22 - NOTES
We sold our pharmaceutical manufacturer (GILD). As usual, we highly recommend that you discuss any portfolio trades with your qualified investment advisor. As a result of this sale, our portfolio has less than 20% equities, with the remainder held in money market funds.
We are, of
course, considering how our portfolio should look when financial values become
more favorable. A traditional benchmark is that the proportion of bonds in a
portfolio should be equal to your age. This, however, assumes that bond returns
exceed the rates of general inflation. This is presently not the case, and will also likely not be the future case. This
means that a portfolio should probably
be biased towards equities contain
a greater proportion of equities, for both income and growth, with the
portfolio necessarily bearing a greater duration (interest sensitivity) risk.
Should this be interpreted as having an all-equity portfolio? Definitely not; but equities representing real assets, do eventually provide a hedge against inflation.
As mentioned above, a flattening yield curve means a lesser amount of short-term capital loss. The 1/31/22 Barron’s indicates that this is already occurring. “The yield curve is flattening quickly. (On Friday the gap between the two year and ten year treasuries was .61%. On December 31, the gap was 1.069%.)…Recessions usually follow in eight to 19 months….David Rosenberg…expects the Fed to lift rates aggressively, only to find that the economy is growing at a much slower pace than it thinks.” The U.S. economy is not the highly cyclical and industrialized one of the past.
We think our markup model (extended to the S&P 500, add: a widely traded asset) is the best way to determine whether or not to invest. But, is it natural law? In the physical sciences, there are several physical laws that anchor entire disciplines (the simplest is F=ma and it gets much more complicated). In finance, the law, formulated amongst “Manias, Panics and Crashes” is: “Do you want to eat well (return) or sleep well (minimize risk).” More seriously, the key question in finance is “What do you REASONABLY want?” We could, for instance, consider a 10% (incl. inflation) rate of return for the S&P 500, “reasonable”. A well-chosen historical study of years 19XX-20XX could assert that the stock market return in those years, in addition, constitute “natural law.” Not so, that return is contingent upon a raft of contingent what ifs that had become actuality.
If you look at current markets (and our S&P 500 present value model), you will see the following:
Reasonable Returns Current Returns
Policy Rate 0%-2% .08%
10 year treasury premium 2%-0% 1.70%
BAA corporate bond premium 3% 1.91%
Equity risk premium 1% .18%
Equity return 6% 3.87% S&P=4331
Considering simpler BAA rates over a ten year period, we think to wait for an adequate S&P 500 equity return is very reasonable; income-earning assets have been very overpriced. But, if you can find a low-risk opportunity, after asking why God has given this to you (Greenwald in class), why not take it? The above also clearly illustrates that the financial markets do not make opportunities available at the same time. In this case, reasonable equity returns will probably be available before BAA bond returns, which are very low indeed.
We have demonstrated that long-term stock returns depend upon stock yields (1.33 X the 10 year average of S&P 500 operating earnings per share/the current level of the S&P 500) and (considering incremental equity risk) the bond yield curve. With the above, we can now discuss portfolio structure. We encourage you to talk with a qualified investment advisor about this.
For a portfolio to last for many years, you have to live within its income – both from stocks and bonds. This is the reason why, with an exception below, we have been waiting for interest rates (rates of return) to increase. The problem with markets greatly exceeding fair valuation is this: after years of overvaluation relative to some Fed long-term equilibrium interest rate (like 2%+), what do you now do without crashing the market? Better the U.S. economy, as in the past, had operated on shorter cycles; the conventional wisdom that one should always continue to invest would have made better sense.
Markets are subject to “Manias, Panics and Crashes.” Here is what our portfolio will likely do relative to various levels of inflation:
Level/Asset Money Market Gold Stock A Specific Utility
High Inflation + + (moderately -)
Medium Inflation 0 0 +
Low Inflation 0 0 +
Wars and their collateral damages surely create high inflation; but so do plagues, because both restrict supply.
John Maynard Keynes was also an accomplished investor. Setting investment policy for his alma mater, King’s College, Cambridge in 1938, he wrote, “…successful investment depends on three principles:-
(1) a careful selection of a few investments (or a few types of investment) having regard to their cheapness in relation to their probable actual and potential intrinsic value1 over a period of years ahead, and in relation to alternative investments at the time.
(2) a steadfast holding of these in fairly large units through thick and thin2 perhaps for several years, until they have fulfilled their promise or it is evident that they were purchased on a mistake.
(3) a balanced investment position, i.e. a variety of risks in spite of individual holdings being large, and if possible opposed risks (e.g. a holding of gold shares amongst other equities, since they are likely to move in opposite directions when there are general fluctuations).”3
1 Although stocks are very traded, they really do have intrinsic value. In Keynes’ time, a company’s intrinsic value was determined mainly by its book value on the balance sheet. Now, it is determined by a company’s likely net cash flow, on its cash flow statement. Keynes was one of the first value investors.
2Being a stock investor requires a consistent investment philosophy, if you are always in touch with the markets. For most people, the best attitude is simply to ignore the market until the price is not prohibitive and then invest steadily.
3During Keynes’ time, individual stock holdings were much more prevalent than mutual funds. Diversification is much easier with mutual funds. Also, as John Bogle of Vanguard contended, the long-term minimization of cost is key.
To determine the appropriate cash flows discount rate, the Capital Asset Pricing Model used by modern finance is sort of like a very general Swiss army knife, very flexible; but is basically a financial equilibrium model, also too dependent upon chosen market history. A current and likely bond yield curve model is more appropriate, obviously for bonds, but also for stocks as well.
J.M. Keynes; “Economic Articles and Correspondence, Investment and Editorial”; Macmillan Cambridge University Press; London; 1983; p.p. 106-107.
In poker terms, President Putin is, “Going All In.” A 2/16/22 WSJ article now states his likely goal:
“In massing troops near Ukraine, Mr. Putin’s goal is to extract (significant) concessions from Ukrainian President Volodymyr Zelensky and force him to give Russia a say in Ukraine’s future. That would send a message to other former Soviet states that the West can’t guarantee their security. To ratchet up the pressure, Mr. Putin has an array of military options short of a full occupation, from low-profile incursions to a limited conflict in the eastern Donbas region, where Russian-backed separatists have declared themselves independent of Ukraine but aren’t recognized by the government in Kyiv.”
The world’s post W.W. II political regime of independent nation states governed by the rule of law is being challenged by the power of, well, power. The slogan of, “Make Russia Great Again” will result in a highly insecure world – the world as it was in the late 19th century. If there is a war, we see all downside for Russia and great problems for the world.
There is a further problem. Wars have a way of spiraling and are therefore irrational because their consequences can’t be determined in advance. In spite of reassurances, the outcomes of war are highly unpredictable. To cite just two examples: The Peloponnesian War started with an attack on a small city-state; it ended almost three decades later with the entire Greek civilization fatally weakened. The two World Wars started with the reassurances on all sides that they would be home by Christmas, 1914. The wars ended with the fall of empires and the rise of the nation-state in 1945.
On 2/24/22, detached from reality and acting out to fear, President Putin has attacked Ukraine. Detached from reality, Donald Trump called Putin’s aggression “very savvy,” and a “genius” move. Should either be President?
This is a website of political economy. The two can be normally considered separately. The first addresses the fundamental bases of market societies, and the second the practical bases of, “keeping the shop open.” The first is normally taken for granted; but during times of conflict with (traditional) authoritarian societies or (non-traditional) totalitarianism a clear choice must be made. This statement by former Ukrainian President Petro (Peter) Poroshenko says it all.
It would seem quite logical that investors would demand a higher return from riskier assets. Now, we can place all major financial assets along a continuum of risk and return, by combining a qualitative (ordinal) measure of risk with a quantitative measure of available market returns. We compare a logical expectation on 5/21/21 with the actual financial market, one year later, on 5/10/22:
2% 10 year treasury premium 2.22%
3% BAA corporate bond premium 2.17%
1% Equity risk premium (.75)%
6% Equity return 4.47%*
*St. Louis Fed FRED data, calculation of S&P 500 returns at the 4001level.
The financial markets do reflect an approximate truth, because the first three rates sum up to a total expectation of around 5%. But, real financial markets are also affected by the supply and demand conditions in each individual market, and the simple economic equilibrium that economists assume is disturbed by other practical factors like: 1) Fed policy 2) Foreign wars 3) Snarled supply chains 4) Past practice.
Mohamed El-Erian, senior advisor to Allianz, says in the 5/6/22 Bloomberg, “…we have mostly priced in interest rate risk. We haven’t priced liquidity risk, we haven’t priced credit risk, we haven’t priced (market) functioning risk. We are still in the process of pricing it. The days of abundant and predictable liquidity are gone.”
As a result of all the above, we think it is justifiable to increase our target rate of our equity returns from 6% to 6-7%. The 7% target would reflect the assumptions we were making before the 2008-2009 crisis, but not before the inflation-prone economy of the last half of the twentieth century, described by Jeremy Grantham. We could further cite: climate change, the adverse demographics of the global work force and globalization itself unsettled. But what happens depends upon what people do. This is, after all, the Anthropocene era. In the face of these challenges, it is only possible to make an investment decision that a specific return is both practical and adequate for the times (we hope).
We have been showing that real markets are subject to, “events” and are therefore not mathematically well-behaved. Market economics is not physics.
Generally speaking, if you have the temperament of trader you will look at short-term events affecting the market. If you have the temperament of an investor, you will look at long-term earnings growth, hopefully anchored inflation expectations, climate change and so on.
Amid fluctuating markets, it is necessary to focus on the basics:
1) The rule of law, guaranteeing, at a minimum, property rights; also the rule of common sense.
2) For those primarily interested in other things besides markets, a continued series of small investments is appropriate, if the market has a decent rate of return (which is around 90% of the time, our estimate *).
3) For those very interested in markets (as we are), having an investment philosophy is crucial. To manage complexity, it is really important to have a philosophy. The two major investment philosophies are value (as measured by a long-term increasing return on investment) and momentum (as measured by a long-term decreasing return on investment). You obviously can’t do both well. If you are interested in markets, search your soul, and then become proficient at one or another.
4) If there is anything that makes one tolerant of differences, its markets. **
* This 12/20 graph from Minack Advisors is really useful because it shows that inflation, i.e. negative real rates, is eventually subdued by the Fed resulting in positive real interest rates. For our purpose, it also shows that 10% of the time, i.e. in around 114/1140 cases, the market is likely to produce low returns because the CAPE P/E is over 25, 156% of the average CAPE level of around 15. (We can now easily translate a CAPE P/E of 25 into a long-term rate of investment return: (E/P=1/25) x 1.33 = 5.32%, too low for equity). The Minack analysis assumes higher levels of interest rates, comparable to historic levels, in the future.
** And markets can often chew gum and walk straight at the same time (an Americanism) because they have participants with different goals and viewpoints.
This assumes a common basis of trust, a very interesting discussion that ought to be held more often, surely within and also across societies. There are now a common set of challenges confronting all.
Logical Expectation 6/16/22 Actual Market 6/16/22
2% Policy Rate 1.58%
2% 10 year treasury premium 1.70%
2% BAA corporate bond premium 2.13%
1% Equity risk premium (S&P 500=3666) (.53%)
Valuation, to see things at their worth, is the core concept of finance, the concept discussed in finance textbooks. However, the day-to-day behavior of the financial markets is another thing; because it is like life itself - highly context dependent. What most matters is who is doing what, in response to market price as it affects supply and demand.
Concerning large portfolio changes (in response to now unavoidable interest rate increases, after more than a decade of repression by the central banks), the “who” that really matters is the Open Market Committee of the U.S. Federal Reserve, as it struggles to contain increasing inflationary expectation. Note the 4/22 increase in add: 12 month hence inflationary expectation to 5.4% relative to a historic long-term Fed goal of 2% inflation. >
According to Milton Friedman, “Inflation is always and everywhere a monetary phenomenon…” But the reverse is not necessarily true, because a large shift in monetary regime also occurred after 2012 (The Fed response, to keep the economy going after 2009), even during the Trump years (to keep shareholders happy), to combating the depressing effects of the COVID Plague (to keep everyone going) – inflation expectations remained relatively subdued until 3/21; and then Putin decided to invade Ukraine on 2/22. This caused another large economic regime shift towards supply shortages. Since the beginning of 2022, wheat has gone up by 36% and the weighted cost of crude oil has gone up by 42%. And, as the Michigan survey indicates, high inflation is now becoming embedded in people’s expectations, causing the Fed a large problem.
The problem facing the Fed, and as a World Bank study also indicates (we find the checked paragraphs highly relevant), is that circumstances are unprecedented: 1) The response of world economies to higher interest rates is unknown (but something has to be done) 2) The problem of manufacturing supply chain snarls in China can’t be remedied by monetary policy 3) The Ukraine war continues. *
Increased interest rates are the tool the Fed has to depress demand. But there is considerable uncertainty as to their effects. Too high interest rates will cause a recession. Too low interest rates will have no effect on inflation. What is just right? In complexity, is there a “just right?” Perhaps there is no automatic mean reversion to equilibrium (as is characteristic of Gaussian risk formally defined), but economic error-correction in the face of uncertainty, with long-term mean behavior a Fed goal. We refer to our original observation, which describes the error-correcting process.
It is with this backdrop that we are challenged to come up with an appropriate portfolio policy. Due to the above large uncertainties; we will, for sure, spread out our increased exposure to a medium-term corporate bond ETF over time. Our goal is to achieve a 50/50 bond-equity portfolio. We have now started increasing our bond exposure, in 10% of the entire portfolio increments. Should the increments be 10% approximately every month or in two months? Our sense is this interest rate cycle will be prolonged before demand decreases convincingly. However, neither we or the Fed are sure of this. Fed policy is “conditions based,” deciding interest rate policy meeting-by-meeting. We’re suspending judgment as to time period until we get more information that includes Fed policy.
As for U.S. equities, they are still too high.
*A 6/17/22 Washington Post article clarifies the stakes for all involved in Ukraine, which through now constrained markets is everyone:
“Kyiv and its backers can hope for little more than a stalemate with Russia’s far bigger, better armed military….’That would mean feeding Ukraine to the wolves,’ Daalder said, referring to a withdrawal of support. ‘And no one is prepared to do that.’”
At this point, a past U.S. president with a too “narrow (moi) perspective, even for business, would likely say, “Settle for what you can get, retreat behind our borders, MAGA!” add: An excellent article in the July/August 2022 Foreign Affairs titled “The Perils of Pessimism” notes that, “Foreign policy elites cope with…uncertainty by fashioning coherent narratives about whether the future is favorable or unfavorable to their country’s interests. Ideologies such as Marxism and liberal internationalism, for instance, rest on visions of progress based on certain actors inexorably rising to power and prosperity. More pessimistic narratives include historical cycles of rising or falling or of terminal decline, violence, and rebirth.” Do you think that Donald Trump is an optimist or a pessimist? Do you want him to lead you again? How do you rate Putin? We note this because, the exact applies to stock market investors. You have to be optimistic to be an equity investor (at least around 89% of the time).
We don’t like to note this. But,
“…officials have described the stakes of ensuring Russia cannot swallow up
Ukraine – an outcome officials believe could embolden Putin to invade other
neighbors or even strike out at NATO members – as so high that the
administration is willing to countenance even a global recession and mounting
hunger.” 1 The Ukraine
crisis is where a qualified and broad foreign policy experience really counts.
Getting out of this crisis in Europe is going to take a lot of skill, as this
conflict is evolving into stalemate.
Ignore the tactical feints. History says you cannot appease a dictator, who after years of power, has progressively discarded all limits, resulting in, “…absolute power corrupts absolutely.” Unfortunately, we are now seeing Putin’s mailed fist no longer hidden by his velvet glove. His mystical decision to invade Ukraine was for his own reasons, and had absolutely nothing to do with the real common challenges faced by his nation and the world in the very near future. This is a picture of a newly appeared Siberian sinkhole in the melting permafrost.
1 These are somewhat remediable relative to the crucial major issue.
This is how we plan to invest our portfolio that is presently mostly in cash – in somewhat volatile bonds and in more volatile stocks. By the end of the year we should be totally invested 50/50, with the exception of some reserved cash. We strongly suggest that you consult with your qualified investment advisors about the following strategies:
The reason for spreading our indexed bond investments out, likely on a monthly basis, is not to maximize returns, but to minimize the regret of being wrong in our timing. Bonds are a very crucial element in maintaining portfolio income, if you wish your portfolio to maintain itself over the long haul.
Stocks are not the same as bonds. They are more volatile, having a longer duration (payback) period, and their long-term investment returns can now be measured in relation to long-term bond rates. What we are looking for, to justify a long-term investment in stocks, is an 1% spread of the S&P 500 over the long-term BAA bond rate. This will require a substantial further decrease in the stock market. When this spread is approximately reached, we will look to the markets for timing and will invest larger amounts than in the case of bonds.
We think this strategy makes sense for us. Both assets are capable of responding to technological change. There is just one further crucial point. We are necessarily treating the financial markets as if conditions will remain normal. But what On to be done about climate change after the next ten years and carbon emissions? If the political systems can deal constructively with climate change, the cost of capital will go up as more public works become necessary. If they can’t, then increasing chaos will ensue and real earnings will go down. This is a general observation.
If you are concerned with preparing the next generation for meaningful careers, you might ask what “meaningful” means if those running the political systems do not respond appropriately soon. At the end of Voltaire’s Candide, the hero having traveled in search of the best of all possible Enlightened worlds, came to the disillusioned conclusion that, “It is necessary to cultivate one’s (own) garden.” That is exactly what people can no longer do. It is really necessary to deal with the problem of climate change, to “Make haste slowly.”
7/27/22, 8/11/22, 8/19/22 Postings Restored.pdf – primarily about inflation and general financial planning.
On September 21, the Fed raised interest rates by ¾% to a level of 3 ¼%, still below the current rate of stubborn inflation. In August, the U.S. Personal Consumption Index (PCE) excluding food and energy rose by 4.6%, way above the long-term Fed target of 2% inflation. Inflation is getting entrenched into expectations; the Fed Open Market Committee remains “condition base,” and voted for this increase unanimously.
It is likely the Fed will increase interest rates until all treasury obligations have a positive yield in excess of then current inflation (have a positive real return). On 9/22 these were the current yields:
9/22/22 Current Yields
Fed Funds 3.25%
2 Year Treasury 4.11%
10 Year Treasury 3.70%
This implies that the Fed era of high interest rates will be longer and higher than previously assumed. There is a reason for this. The Bank for International Settlements is a central bank for the national central banks. In its 6/26/22 Annual Economic Report, it sets that is likely to be world-wide perceptions of what inflation is, and when it is propagated. *
This report sheds light on how inflation can arise and propagate from sector-specific price shocks, and of the relative roles of cyclical and structural forces.
“When inflation is low, economies have “significant self-stabilizing properties.” In other words, energy price spikes can be contained. “High inflation…induces changes in more structural features of wage formation, such as indexation and centralized wage bargaining, which help entrench the regime.” Considering U.S. inflation data between 1/65-12/85 (a period of high inflation), increased prices for food and gasoline were the major exporters of ‘spillovers’ to other economic sectors. In the future, we might note the increasing costs of food and energy, due to the stresses of climate change.
The best central bank policy is not to let general inflation even get started. “Transitioning back from a high-inflation regime can be costly once it becomes entrenched. All this puts premium on a timely and firm response. Central banks fully understand that the long-term benefits far outweigh ant short-term costs.” The central banks are likely to take heed of this. Inflation’s best economic effect is when it is negligible.
But it is a mistake to assume anyone can hit the top or the bottom of interest rates. We will probably increase our bond portfolio again within the next one or two months, because bond returns are much higher than previous.
*For those who are interested, this easy-to-understand report is also an excellent discussion of how general economic concepts affect specifics.
Third quarter earnings are out for VZ and NEM. Earnings are down relative to the previous quarter and year due to the immediate impact of inflation upon costs, and the delayed impact of inflation upon revenues. We do not think they will have any problem maintaining their dividends over time periods measured in many years. Due to the following, NEM has been dropping; but the company has its costs under control and reports its finances conservatively.
The October inflation report indicated a very slight moderation of the core inflation rate, excluding food and energy, from a revised 6.6% in September to a 6.3% October core rate. Conditioned to “buy the dips,“ traders caused the ten year bond yield to decrease from 4.15% to around 3.92%, and the S&P 500 to correspondingly increase. It is true that a recession, if any, will be over within a year or two. Does this mean locking in higher long-term rates right now; or will there be an upward shift in all financial market yields due to both increasing Fed funds rates and increasing long-term inflationary expectations? We expect the latter. That means that our next lock point will likely be above the present intermediate bond ETF yield to maturity of around 5.5%.
To stop inflation as soon as possible before it becomes further embedded, the Fed has raised rates quickly. At a news conference after the Fed announcement of a ¾ % rate increase, Chairman Jay Powell suggested that it was premature to look forward to rate decreases. It is better to overtighten, using available tools to support the economy; than to undertighten and let inflation get away. Thus, the likely track of Fed policy towards high interest rates will last longer.
Our portfolio is presently around 50% in cash; before increased investing in long-duration assets – either stocks or bonds. * The financial panic of 2008 had one originating cause, the housing crisis. Present uncertainties: climate change **, deglobalization and that horrendous war in Ukraine are multiple causes. The way for a value investor to handle these uncertainties is, at least, not to overpay; to expect at least a positive risk premium from stocks. We look for a long-term return of around 7% on the S&P 500. If this is not available in stocks, then we will invest in bonds to lock in rates. It is also no fault to remain, for a while, in cash - which is finally earning a decent rate of return.
* We would much prefer not to get into wholesale market timing; but this is a substantial fact: if one had avoided the excesses of very overvalued stock and bond markets; then one must reinvest appropriately at a better price. We don’t think that always to be fully invested is the correct thing to do; the alternative is to have to get the markets approximately right, and to maybe suffer some further minor losses. It would be better for all that markets not be overvalued relative to their real business prospects. An analyst once said, “That company is irrational; its going to crash.” It did.
** To get a general idea of how much adaption to climate change will cost; the International Renewable Energy Agency estimates by 2050 that the total cost will be $131 trillion, on a per year basis about 5.5% of the world’s 2021 GDP. To limit a temperature rise to no more than 1.5 C over the preindustrial level (if possible); any reasonable target will have to be met by a combination of governments, businesses and consumers, thus raising the cost of capital in the financial markets over the long-term. The alternative of doing nothing will be even more costly.
11/15/22 – revised
From Keynes onward, it has been noted although stocks are clearly very long-term assets; with a payback duration of over 36 years, their pricing in markets is very short-term. If portfolios are structured for the long-term, then a longer-term view is necessary. That longer-term portfolio view, particularly for those interested in other things, is inflation protected income – stocks for long-run inflation protection. At a current rallied 11/10/22 S&P 500 price of 3956, its current dividend yield and equity risk premium are clearly inadequate. To ask a question: do investors expect future real dividend growth in the present international climate to be very large? This may be formally shown by comparing the present value of stock returns with current available bond returns:
Logical Expectation 11/10/22 Actual Market 11/10/22
2% Policy Rate 3.83%
2% 10 year treasury premium - 0.01%
2% BAA corporate bond premium 2.36%
1% Equity risk premium (S&P 500=3956) (-1.48%)
As can be seen from the above, the current BAA bond YTM is 6.18%; but the present value of equity returns is only 4.70%. If you buy BAA bonds, you can get a 6.18% return over around 7+ years. If you buy the S&P 500 you can get a 4.70% return over 36+ years. As a long-term investor, which would you choose?
Now to interest rates. We have just increased our portfolio bond holdings to our target, around 50% intermediate term corporate bonds. The total YTM of those bonds will be less than the BAA rate above, due to our gradual phasing into this position and due to the ETF holding of slightly lower-rate A bonds. But bonds at these higher rates haven’t been available in ten years. We had originally hoped for a lower price than 75.5 and certainly lower than the last price of 77.35. While we, obviously, remain very cautious about the stock market, we are now at our bond target.
The reason for this is the latest October core CPI reading of 6.3% (which we dismissed above) and the latest 11/15/22 October core producer price reading of 6.7% on an annual basis, and unchanged in October. This signals that the momentum of inflation may have been broken (except for international developments) and that the Fed’s job of decreasing inflation to the 2% level may be slightly easier. The producer price index leaves out increasing real estate rentals (but factors in construction costs), the cost of imported goods and domestic distribution costs. It differs from the CPI due to its perspective at the producer rather than the consumer level. The economists, who expected a decrease of inflation due to the moderation of input prices, may be right…in the very long-term. The Fed still has difficulties decreasing inflation, but their job will be somewhat easier due to the subtraction of momentum. This means, ultimately, a highly inverted bond yield curve with a lessened risk of further long-term bond price depreciation.
Investing is not, however, without risk; that’s why risk premia exist. If Europe has a cold winter, the cost of energy and long-term bond yields will spike again. But we are now taking much less risk by increasing bonds than stocks.