“You gave the world a lot of joy; Now that ain’t bad for a country boy.” — from “Hound Dog Man,” as performed by Roy Orbison
You know you’re really famous when people know you by your first name. Everyone knows who Oprah is. Elvis Presley was perhaps the first celebrity I can recall who simply went by his first name. Madonna, Bono, and Shaq are all members of the “No Second Name Needed Club”.
What, I wonder, is the most important one-word name in investing? Is it Warren (as in Buffett)? Or Jeff (as in Bezos)? They’re close to the top of the list, but the most important name in investing is actually a woman’s name (and not a person at all): TINA.
TINA is an idea, as in “There Is No Alternative” (to stocks). TINA was popularized a few years ago by Wall Street strategist Jason Trennert. TINA is a concept that posits that in an investing environment with very few safe alternatives to invest cash and with real fixed income yields offering only 1 or 2 percent, stocks become a more attractive asset class relative to bonds and other low-yielding assets
While they didn’t coin a catchy acronym for the idea, the most prominent investors in the world also emphasize TINA’s importance in a low interest rate world. Just ask Warren, who recently said “The most important item over time in valuation is obviously interest rates ... it’s a huge bargain to buy stocks now if you knew interest rates would stay at these levels.” And while none of us can claim to predict what interest rates will be going forward, it seems highly unlikely that long term U.S. interest rates, already the among the highest in the developed world, will be significantly higher in the very near future.
The more an investor ponders TINA, the more it explains the fixation on every word uttered by the Federal Reserve. Every time the Fed has led investors to believe rates could and should be higher in the last few years, market swoons ensued. When they acknowledge that rates may indeed stay lower-for-longer, stock markets rejoice.
TINA also explains the recent divergence between stock and bond markets. Normally, a surging stock market leads to higher interest rates. Either through Fed rate hikes or investors pulling money from bonds (which makes the yields go up) to put into stocks. But recently stocks are within a stone’s throw of all-time highs (which tends to reflect economic optimism) and yet bond yields are down in the dumps (which suggests investors don’t expect much growth or higher interest rates in the future).
So which market is right, stocks or bonds? The old adage is that the bond market is the “smart money” but in this environment, they both could be right.
Margaret R. McDowell, ChFC, AIF, author of the syndicated economic column "Arbor Outlook," is the founder of Arbor Wealth Management LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.