Investors Warm Up to Equities, Cool Down on Bonds

We like to follow independent thinkers such as Greg Weldon who published an interesting analysis this week detailing a key change in the flow of investor funds. Since the earliest days of the crisis, investors have been skittish on equities while money poured into bonds despite very low yields. The volume and velocity in which funds left stocks for bonds since 2008 was unprecedented.

This chart from Weldon shows the amount of Treasury Securities held by U.S. households since 1960. You can see that the total amount of Treasury holdings skyrocketed from $263.87 billion in December 2008 to greater than $1 trillion in less than two years.

This second chart is a measurement ratio of the S&P 500 Index versus the 10-Year U.S. Treasury Note futures contract. The chart shows that stocks have been in a downward trend since hitting an all-time peak in 2007. Even with the big bounce of 2009, stocks were unable to break this downward trend…until now.

Weldon has drawn in the trend line so it is easy to recognize. You can see that the stock breakout over the past several months has finally broken the downward trend. This is a very bullish signal for stocks as money rotates out of Treasuries and back into equities.

This piece was prepared by John Derrick, U.S. Global Investor’s Director of Research.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.

About Frank Holmes 263 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

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