Value Line Lowers Equity Exposure

I love Value Line. I still remember when they issued their reports in giant binders. They sent out a new section every week/month (I forget which). It was -- and still is -- one of the best overall information sources for stocks.

From Marketwatch:

Value Line's recommended equity exposure range is now between 60% and 70%, which is the lowest level it has recommended in five years. That represents a 10-percentage-point reduction from the range that existed prior to Monday morning.

Value Line didn't decide to reduce its equity exposure because of worries that an even deeper economic recession is ahead of us. On the contrary, it believes that, though the current recession "is still with us ... its fury is lessening."

Instead, the source of Value Line's concern is the sheer magnitude of the market's rally over the last three months, which certainly appears to be discounting more than just a mere lessening of the recession's fury. Since the March 9 low, for example, that rally has tacked on more than 40% to the overall market, and even more to some of the most speculative sectors of the market.

.....

Another factor leading Value Line to become more bearish is the recent rise in long-term interest rates. The CBOE's 30-year Treasury Yield index for example, has nearly doubled this year -- an extraordinary rise in so short a time. Since longer-term bonds compete with equities, this rise makes stocks relatively less attractive, especially when the stock market has itself risen so fast.

There are two interesting data points there:

1.) This isn't economic -- that is, the survey is not saying we're going to see a double dip recession. Instead this is about a big rally that has lost its wind and

2.) Rising interest rates are now competing with stocks. That's really interesting. For someone interested in income the relative safety of Treasuries is fair right now.