"Why can't we have a better financial press?": MarketWatch

Brett Arends of MarketWatch makes a flawed argument in favor of selected high dividend stocks over U.S. Treasuries:

The rush into Treasurys has driven the yield on 10-year bonds tumbling, below 3%. Meanwhile, the sell-off on Wall Street has driven stock yields in the opposite direction. You can now find top quality blue-chip stocks that offer dividend yields better than 3%.

The fact: 10-year US Treasuries have returned 4.9% this year. Stocks in Arend's list like Verizon and Merck have returned +1.08% and -0.6%, respectively year to date. And those numbers include dividends.

The article omits the biggest risk: a drop in stock prices. Because of falling prices, Verizon and Merck stocks underperformed US Treasuries significanly year to date. How is it possible that 10-year Treasuries have returned 4.9% so far this year when rates are below 3%? Because interest rates have fallen. When interest rates fall, bond prices rise.

Think what you may about the merits of high dividend stocks. A comparison between bonds and stocks purely on yield is at best incomplete, at worst misleading when the impact of potentially dramatic price changes in the underlying securities are not discussed.

Impact of weaker German economic data

In the face of the Eurozone crisis the German economy has so far remained resilient. With over half its exports going to other European countries - many of which are in an economic slump - Germany's economy has limited room to grow. Today's disappointing trade data may well be the first sign of an inevitable slowdown. Already facing a skeptic domestic popular opinion, an economic slowdown will further pressure the government to push for additional austerity measures in peripheral countries.

While the ECB is bent on fighting headline inflation, weaker growth will eventually force the ECB to lower rates - but not before damaging Europe's economies by raising rates first. While a rate hike may strengthen the Euro in the short-term vs the dollar, the monetary union's structural deficiencies are a net negative for the Euro and a positive for German interest rates (lower) vs those in peripheral countries (higher) within the next 12 months.

Housing: It's a double dip

How a double dip in home prices looks like:

Source: S&P

Home prices will remain a significant drag on economic recovery as they constrain consumer spending. That spending makes up 70% of the U.S. economy. The common wisdom that house prices always rise has long been tossed out of the window. It bears remembering that many pundits who predicted a "healing" less than a year ago, are still dominating the airways with their fiscal austerity now and interest rate "normalization" gospel.


Housing and unemployment remain un-addressed while House Republicans are set on extracting more austerity measures in current negotiations about raising the debt ceiling. Forcing the U.S. to default on its debt would be irresponsible at best, leading to higher interest rates, and at worst cause a global recession.


Sadly, both parties have convinced themselves that they have done all they can about unemployment and housing.