In 2009, Stocks Over Bonds Means Inflation Over Deflation

This should be an interesting chart from Bloomberg's chart of the day.

According to Bloomberg,

``U.S. stocks beat 30-year Treasury bonds by a record 36 percentage points in 2009 as investors bet on a recovering economy and the government sold a record $2.11 trillion in debt.

``The CHART OF THE DAY shows the performance of 30-year bonds versus the Standard & Poor’s 500 Index since 1978, according to data compiled by Bloomberg and Bank of America Merrill Lynch. Last year, the debt lost about 13 percent, while the benchmark index for U.S. stocks surged 23 percent. Gold futures added 24 percent in New York.

``Stocks trailed bonds in 2008 as the worst financial crisis since the Great Depression drove investors to the relative safety of Treasuries. They switched places in 2009 as the yearlong contraction in U.S. gross domestic product ended and President Barack Obama raised money to fund economic stimulus programs."

I'd like to add to the perspective where 2009's outperformance of stocks over bonds essentially validates the camp of those who argued for inflation to prevail over the camp of those who advocated for deflation. And the difference hasn't been marginal.

Yet this serves as an example where a misread would have been devastating to the real returns of a portfolio.

We should see the same dynamics for the 2010.