The Great Rotation may not yet consist of a mass rush out of bonds, but wait until investors see their quarterly statements.
It's another morning of rising rates, following on yesterday's jump. It would help the markets to see some stability.
Higher interest rates on top of a very fragile global recovery is a recipe for falling back into no-growth.
Rising rates are a real problem for commodity stocks, particularly since the global economy is not that strong — thus demand is not high for their products. It's another ugly morning for Materials, with big names like BHP Billiton, Rio Tinto, Mittal , and Sterlite all down 3 — 4 percent. Base metals like copper, aluminum, nickel and zinc are down again this morning. The Aussie dollar is at a multi-year low versus the dollar.
Higher U.S. rates, and talk of the Federal Reserve tapering bond buying, is causing some unease in emerging markets: the iShares Emerging Markets ETF is down nearly 10 percent in the past 2.5 weeks. Some parts of Asia (Thailand, Phillipines, Indonesia) were down more than 3 percent overnight.
Then there's Japan. Futures began dropping in the early evening as the Bank of Japan left its policies unchanged, with no hint of additional quantitative easing for the moment. The yen weakened considerably, down nearly 2 percent to 96.85 to the dollar. Japan stocks dropped 1.4 percent.
1) There may be no big move out of bonds and into stocks yet, but wait until investors see their quarterly statements, at least if they end close to where they are now.
I said a couple months ago that it would take a few quarters of investors looking at significantly lower returns from bonds versus stocks before any serious money was pulled out of bonds.
We are near the end of the quarter, and for the second quarter in a row the S&P 500 is up, while bond funds are, for the most part, down:
S&P 500 10.0% 4.6%
Long term Treasuries (TLT) -2.8% -4.3% (4th straight quarter of losses)
Corporates (LQD) -0.9% -3.1%
High yield (HYG) 1.07% -2.3%
Notice that Long-term Treasuries (TLT) are down over 4 percent, representing its fourth consecutive quarter of losses! This is not trivial on a fund where the yield is below 3 percent!
What's the pain threshold, the point at which this will gain some real traction with the investment public?
I'm not sure, but it's pretty clear the "advance guard" (those who obsessively watch these kinds of things) are already starting to react. According to Lipper, $9 billion was removed from bond funds last week, about half of that from high yield.
And if you look at a slightly different metric--how far everything is from their recent highs--the difference for Treasuries are indeed stark, with Long-term Treasuries down nearly 15 percent.
Historic High From High
S&P 500 May 22 -2.6%
Long term Treasuries (TLT) July 2012 -14.8%
Corporate bonds (LQD) Oct. 2012 -5.7%
High yield (HYG) May 2013 -4.3%
Bottom line: the Great Rotation may not have started yet, but the elements are starting to fall into place.
2) Dole Food is up over 20 percent as Chairman and CEO David H. Murdock has offered to buy the company in a deal valued at roughly $1.5 billion, or $12 per share. That would represent an 18 percent premium to the close yesterday: Mr. Murdock owns 40 percent of the shares outstanding.
—By CNBC's Bob Pisani