Yield pendulum at the apex

Defying gravity, it seems to us that the search for equity dividend yields has pushed the pendulum to its apex. In recent weeks yield stocks have started to lose momentum as pure dividend plays have become stretched like never before.

Some caution is warranted in pure yield stocks
Moreover, investors have left behind quality companies. Citibank say that globally yield stocks are trading at all time relative highs (since 1995) while quality stocks are trading at relative lows . We are not sure how or when this ends but caution is warranted.

Also as our fixed interest colleagues note, 15% of all government bonds on issue are trading at 0% or less. This isn't normal. Either nominal global growth is heading for 0% or less and central bankers are going to fail to encourage an expansion of activity and prices, or gradually we will see activity levels pick up a bit, and employment and wages improve.

Global growth is better than markets think
We disagree with the markets view that deflation is a current threat for the following reasons: