Warren Buffett says it is “quite clear stocks are cheaper than bonds” right now, but notes that relationship will change eventually when confidence in the economy is inevitably restored.
In an appearance at the Fortune Most Powerful Women Conference in Washington, Buffett said he “can’t imagine” choosing bonds over stocks at current prices, but concedes that’s what many investors have been doing because of a “lack of confidence” in the economy’s future. “They’re making a mistake, the ones that are buying the bonds” at record low yields.
“It’s quite clear that stocks are cheaper than bonds. I can’t imagine anybody having bonds in their portfolio when they can own equities, a diversified group of equities. But people do because they, the lack of confidence. But that’s what makes for the attractive prices. If they had their confidence back, they wouldn’t be selling at these prices. And believe me, it will come back over time.”
It’s not a new opinion for Buffett. Back in early 2009, he was writing about an “extraordinary” U.S. Treasury bond “bubble.”
Fortune’s Street Sweep blog points out that the 10-year Treasury yield has dropped to under 2.5 percent from 4 percent over the past six months.
FDIC Chairwoman Sheila Bair told CNBC there “a bit of a bond bubble now”, longtime bond bull Goldman Sachs believes bonds have peaked and will be heading lower from here, and Pimco’s Steve Rodosky tells Dow Jones today that “the best day in Treasurys is probably behind us.” He hasn’t bought them since July.