Chart of the week

Sorce: Isabelnet, 22.10.2022

The chart shows the purchase volume of private investors in bonds. After having almost completely exited the market, private investors are making an impressive comeback.

Why it is important

The question, of course, is whether this is the right decision?

Source: Isabelnet, 22.10.2022

The chart shows the volume of bonds on the market that pay a negative yield. Since most central banks have abandoned their negative interest rate policy, the value of bonds that nominally pay a negative interest rate is also declining.

Source: Isabelnet, 22.10.2022

Because of the interest rate increases, after many years you get an interest rate in bonds (dark blue) that is higher than the dividend yield of stocks (light blue). So the ideal time to switch from stocks to bonds?

Source: Isabelnet, 22.10.2022

The chart shows the interest rate hikes still planned by the U.S. Federal Reserve. Interest rates are expected to rise further by next February. If you buy a bond now, you will get your invested money back after the bond expires in 2-5 years, but in the meantime the capital value of the bond will decrease by up to 10%. So bonds are only an investment for investors who buy individual bonds and hold them in their portfolio until maturity.
In addition, all the charts above are from the US. In Europe, interest rates are still very low. If you as an investor in Europe buy bonds in the US now, you have a very high currency risk.

Source: Isabelnet, 22.10.2022

The chart shows a Bank of America survey of the largest institutional investors. They were asked in which investment they see the most risk. This is currently quite clearly the strong USD. So anyone who invests in US bonds now in order to get a high interest rate will very likely lose the higher interest rate again with currency losses.

Source: JPM, Guide to the market, Q3 2022

The chart shows the global inflation figures. From the interest rate of the bond (nominal yield) one has to subtract the above inflation. This then gives the REAL return, and it is still strongly negative.

One should currently invest in assets that have a chance to beat inflation. This is still almost exclusively equities.

Companies deliver better business results than expected

Source: Isabelnet, 20.10.2022

The chart shows the average earnings per share of the S&P 500 Index (dark blue) and a survey of the largest institutional managers on whether they expect higher earnings in the coming months (light blue). The discrepancy between the two lines is the widest it has been since 2006, and the chart shows that the negative attitudes of the largest investment managers do not match the current situation. Companies are reporting much better and more robust results than many think. Investors will have to rethink their overly negative outlook.

Source: Twitter, Michael A. Arouet, @MichaelAArouet, 22.10.2022

The chart shows a survey of private investors in the USA. The number of bears (investors who expect markets to fall) minus the number of bulls (investors who expect stock market prices to rise). Investment sentiment is worse than in the 2008 financial market cycle or the 2020 Covid crisis.

Source: YouTube Markus Koch Wall Street from 17.10.2022, Time stamp: 02.03

Based on the extremely negative attitude of many investors, they buy put options to profit from a further falling market. The chart above shows the number of open put contracts on the S&P 500 index in the US. The level is higher than at any time in history.
The number of investors who are negative on future stock market performance is higher than ever before. In retrospect, it has always been the best time for investors to enter the market precisely at such a time. It currently takes a lot of courage to do this, but it is usually worth it.

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