Marvin the Martian

[Ryan Frost @Frost_RyanWPC]

One of the the biggest financial proponents of higher taxes, Nick Hanauer, said “virtually every wealthy friend I have has either left or is planning to” because of all the recent tax increases.

Us “opponents of the income tax” are not “oversimplifying” anything, this is what’s actually happening. #waleg

[TreasuryBonds.com @TreasuryBonds1]

This image has gone mega viral over the last few days, but investors are still COMPLETELY missing what it actually shows.

Read this post in full if you want to really understand what's going on in the bond market.

Let me explain:

The vertical axis shows annual returns, while the horizontal axis shows volatility.

From 1986 through 2020, adding bonds to a stock portfolio did exactly what investors wanted:

It reduced volatility without destroying returns.

A 100% stock portfolio produced roughly a 12% average annual return with 16% volatility.

But a portfolio holding approximately 25% stocks and 75% bonds still returned more than 8% while reducing volatility to around 8%.

That is the magic of diversification.

The portfolio became less volatile than either stocks OR bonds held independently because the two assets frequently moved in opposite directions.

But look at what happened from 2021 through 2025:

The efficient curve largely disappeared and was replaced by an almost straight line.

Every additional dollar moved from stocks into bonds reduced returns, but provided far less diversification than investors had grown accustomed to.

A 100% stock portfolio returned nearly 16% annually.

A 60/40 portfolio returned roughly 8.5%.

And a 100% bond portfolio actually lost money.

The problem wasn’t simply that bonds produced lower returns.

The problem was that stocks and bonds were suddenly reacting to the same economic threat:

INFLATION.

When economic growth is the market’s primary concern, stocks and bonds often move in opposite directions.

Weak growth hurts corporate earnings and stock prices.

But it can also push inflation and interest rates lower, causing bond prices to rise.

That is why Treasuries historically performed so well during many recessions and equity-market crashes.

Bonds absorbed some of the damage when stocks declined.

But an inflation shock works differently.

Higher inflation forces interest rates upward.

Higher rates reduce the value of existing bonds because their fixed coupon payments become less attractive compared with newly issued bonds.

At the same time, higher rates raise the discount rate applied to future corporate earnings, compress stock valuations and potentially pressure profit margins.

In other words:

A growth shock can hurt stocks and help bonds.

An inflation shock can hurt BOTH.

That is exactly what happened in 2022.

The S&P 500 returned approximately -18%.

Ten-year Treasury bonds returned approximately -18%.

The asset that was supposed to protect investors from the stock-market decline fell nearly as much as the stock market itself.

However, there is an extremely important limitation hidden inside this image:

The blue line covers 35 years.

The red line covers only five.

And those five years included one of the most violent interest-rate resets in modern market history.

Bonds entered this period with yields near historic lows.

Investors were receiving very little interest income to offset falling prices when rates rose.

The Federal Reserve then increased rates at an extraordinary pace, producing enormous losses for long-duration bonds.

So this chart does not prove bonds will continue producing negative returns.

It shows what happens when you own long-duration, fixed-rate assets immediately before a massive inflation and interest-rate shock.

In fact, bonds are in a very different position today.

Starting yields are significantly higher.

That additional income creates a larger cushion against future price declines.

And if inflation falls, economic growth weakens or interest rates decline, high-quality bonds will regain much of their traditional hedging power.

But investors should still learn an important lesson from this chart:

Diversification based only on asset labels is not real diversification.

Owning one stock fund and one bond fund may look diversified-

But both can still be exposed to the same underlying risk.

Long-duration stocks and long-duration bonds can both get crushed by rising discount rates.

Corporate bonds can behave like equities during a recession because credit spreads widen.

Private credit and BDCs may provide income, but they still contain significant economic and credit risk.

Covered-call funds may reduce some volatility, but they still own equities underneath the options strategy.

Replacing bonds with another asset that carries even more equity risk does not solve the diversification problem.

Investors need to begin with the specific job they expect each asset to perform.

If the goal is near-term liquidity and capital stability, short-term Treasuries or a Treasury ladder would be more appropriate than a long-duration bond fund.

If the goal is protection against recession and falling interest rates, longer-duration, high-quality government bonds would play an important role.

If the goal is protection against unexpected inflation, investors need exposure designed for that specific risk, such as TIPS, commodities or businesses with genuine pricing power.

And if the goal is funding retirement spending, investors should think beyond short-term price movements and build a durable cash-flow plan.

That can include cash reserves, bonds matched to upcoming expenses and a diversified collection of companies capable of growing their dividends and cash flows over time.

Growing dividends will not prevent stock prices from declining.

It would be a HUGE mistake to look at this image and assume that every investor should abandon bonds and buy 100% stocks.

But you do need to understand that that the 60/40 portfolio was never a law of nature.

It was a portfolio designed around the assumption that stocks and bonds would respond differently to economic shocks.

The 60/40 is certainly not dead...

But investors must recognize that its diversification benefits are dependent on whether markets are being driven by fears of weak growth or rising inflation.

[Marvin the Martian @MarvintheMmd]

'Progressive-palooza': Sanders, Warren, Pressley stump for Sen. Ed Markey. Old man smells https://t.co/ZtIJYNrxpS

[Dan Hill @dandinohill]

You know what's frustrating? The Republican Congress has almost completely wasted the House, Senate, and Presidency trifecta that the voters gave them in 2024

Most of them deserve to be voted out.
But sadly - the Democrats are MUCH WORSE.

So we will have to hold our noses and re-elect the RINOs (most of them) who we didn't get rid of in the primaries.

[Marvin the Martian @MarvintheMmd]

@Godfatherparte2 Pay them a decent way cheapskate

[Kurt S. Altrichter, CRPS® @kurtsaltrichter]

Since 2006, federal debt is up $32 trillion. The economy that has to service it is up $19 trillion.

Debt is nearly 5x, GDP barely 2.5x. Public debt went from under 40% of GDP to 100%, and the CBO says 175% is next.

Washington has to keep selling that much new paper into a market that already owns too much of it. That is why long rates stay high no matter what the Fed does, and why the money printer is the only exit left.

[Miranda Devine @mirandadevine]

Less than two weeks until the 25th anniversary of 9/11.

[Stacy is Right @PoliticalStacy]

Nah, bitch. We ain’t.

[Chris Freiman @cafreiman]

Your periodic reminder that the middle class is shrinking because many Americans are getting too rich to remain middle class:

[Global_Macro @Marcomadness2]

A lost decade in bonds well under way

[Marvin the Martian @MarvintheMmd]

@RepDeborahRoss The entered illegally!

[K. Seth @K_Seth1]

These are the same goat fucking Muslims who put Mamdani in office for the freebies, no tickets, no rules, everyone covers for everyone. Same playbook as London and it's coming to Michigan next. These are the people who destroyed Europe and the UK and it's happening right in front of our eyes. And There are a lot of Pakistanis in that crowd selling fake visas for $60,000. Of course, that’s just the sticker price, the actual price is much less. ICE and the FBI need to clean this up. Where's the swamp draining? Ask your politicians that in November. This is London. Fuck Islam. 🐷👇

[Benjamin @BenjBenAvraham]

@NateFriedman97 In the future , the American army may have to take back New York.

%12 of NYC should not be Islamic. That is just wrong.

Remember your enemies.

[Katie the Lunch Lady @KatieLunchLady]

@NateFriedman97

[ElizaJ @MissDanger_3]

@NateFriedman97 @MagaMalinois

[Ron S. Friedman @RonSFriedman]

Why Western civilization is in decline.

[AskLivermore @asklivermore]

The Shiller CAPE ratio is at 42.2x. The only time it was higher in 154 years was the dot-com bubble at 43.8x.

But here's the thing most people get wrong: the CAPE can stay elevated for years. It crossed 25x in 1996 and didn't peak until 2000.

What the CAPE actually tells you is not WHEN to sell. It tells you WHAT your forward returns will look like. When CAPE is above 40x, the S&P 500 has averaged +2.3% annually over the next 10 years. When it's below 15x, it averaged +10.7%.

You don't have to sell. But you should know what you're buying into.

The CAPE ratio measures how expensive the stock market is relative to the last 10 years of inflation adjusted earnings. Think of it as a price tag on the entire market. The higher the number, the more you're paying for each dollar of earnings.

[The Conservative Alternative @OldeWorldOrder]

J.R.R. Tolkien did NOT like Leftists.

"Beware! All Leftists are anti-philology!"

He warned that Leftists try to weaponize language, by changing the meaning of words.

And it's still happening today! The Leftists even tried to change the definition of the word 'woman'...