Sep

20

I am re reading Practical Speculation and it's a gold mine that I didn't understand when I first read it 20 years ago. Vic and Laurel wrote in Prac Spec that some times are not good to buy stocks. "An increase in the stock-bond ratio (the number of 30-year Treasury bonds it requires to “buy” the level of the current S&P 500 futures contract)."

Stock/Bond Ratios
2026 3.6
2025 2.4
2024 2.3
2023 1.8

Cagdas Tuna asks:

Is this calculation futures contract price divided by each one or contract size also included?

Peter Ringel responds:

I think, It does not matter. Ratios have scale invariance ( was that the term ? ). The shape will be the same.

Zubin Al Genubi clarifies:

ES 50×7709 = $385,450
ZB 1000×107 = $107,000

Cagdas Tuna writes:

Thanks for confirming the calculation. I respect the findings however the concentration in S&P (not to mention Nasdaq) has changed in the last years. While any fixed income instrument weighs the same US indexes weighting have shifted a lot.

Steve Ellison writes:

I have tracked this ratio ever since reading Practical Speculation 20+ years ago. One thing I quickly found is that the stock market has drift, but the bond market does not, so comparing ratios from different eras is not very meaningful. To assess whether the ratio was high or low, I graphed it with a 50-day moving average and Bollinger bands.

For the ratio calculation, I pulled the 10-year bond yield from Yahoo Finance and used the bond pricing formula to calculate the net present value of a 10-year bond given the current yield. I then calculated the ratio of the S&P 500 index price to the bond value.

As of yesterday's close, this ratio was below its 50-day average, but well within the Bollinger bands. I start paying attention when the ratio falls below the lower Bollinger band.


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