PodcastThe Real Investment ShowLance Roberts

10-1-26 From TINA to TIGA: Diversification Pays Again

The discussion examines the market’s heavy dependence on technology earnings and AI-driven growth, alongside the delayed effects of higher interest rates on households, small businesses, and corporate refinancing. Speakers also question the implications of a PCE methodology revision, while strong consumption and business investment continue to support growth and inflation. With Treasury yields above 5%, stretched equity valuations, and a historically low equity risk premium, they argue for considering modest bond diversification while treating potential yield retracement as a trading opportunity rather than a certainty.

Technology StocksArtificial IntelligenceInterest RatesMarket ValuationsFixed IncomeInvestment Strategy

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Key Takeaways

Technology earnings have grown 380% above nontechnology earnings since 2020 and now account for 76% of S&P 500 earnings growth, leaving the broader market highly dependent on AI-related expectations. The speakers said technology has remained resilient with rates near 5%, but refinancing at materially higher rates—potentially in the 6% to 12% range—could pressure earnings.

The economy is showing strong demand, with third-quarter growth expected to approach 5% and personal consumption expenditures—about 70% of GDP—running above their 10-year average, helping keep prices elevated. At the same time, a methodology revision lowered reported PCE inflation to about 1.6%, leading the speakers to question whether the Federal Reserve raised rates before receiving the revised data.

The impact of higher rates is expected to reach households and small businesses gradually through more expensive credit-card balances, auto loans, and floating-rate or credit-spread-linked business loans. Corporate earnings could face a similar slow-motion drag as debt matures and must be refinanced at higher Treasury yields and credit spreads.

Employment data and CPI were identified as important catalysts for further rate-expectation repricing: exceptionally strong employment could reinforce a hiking path, while weak data would imply a different outlook. Rate-cut odds had already fallen from above 60% to roughly 25%–30%, while companies were retaining existing employees and limiting hiring amid concern about future demand and earnings.

The 10-year Treasury yield was around 5.29%–5.3%, more than three standard deviations above its one-year moving average, a setup the speakers viewed as a possible short-term trading opportunity rather than proof that yields could not rise further. A large short position in TLT could amplify a reversal because short covering would add buying pressure if yields declined, potentially following lower oil prices, economic developments, or disinflationary headlines.

TECHNOLOGY

AI Earnings Concentration — Technology-company earnings have grown 380% above nontechnology-company earnings since 2020, while technology-related stocks now contribute 76% of S&P 500 earnings growth. The broader market is therefore heavily dependent on technology earnings and expectations for AI-driven growth.

“So this is technology earnings relative to non- tech stocks and the earnings growth rate for technology and non- tech stocks really through 2020 we're about even and then really…”—

ECONOMY

PCE Revision — A methodology revision lowered reported PCE inflation to about 1.6%, including downward revisions to investment-management fees, computers and software, and legal services. The revision led the speakers to question whether the Federal Reserve raised rates before receiving the updated data.

“Yesterday was the revisions to the personal consumption index which is u personal consumption expectations index PCE and that showed personal PCE inflation actually is running about 1.6%…”—

Demand Inflation — Strong consumption and business investment are supporting robust economic growth, with third-quarter growth expected to approach 5%. Personal consumption expenditures account for about 70% of GDP and are running above their 10-year average, helping keep prices elevated.

“But in the near term nonetheless you know inflation is getting fed by a much stronger economy and that's we also saw yesterday was the revision to the second quarter…”—

Delayed Rate Impact — Recent rate increases have not yet fully affected household borrowing costs. The speakers expect their impact to emerge through higher credit-card bills and more expensive auto loans.

“A lot of that is because what the Fed just did and the recent rise in rates hasn't really impacted yet. It will…”—

MARKETS

Treasury Yield Deviation — The 10-year Treasury yield was about 5.29%–5.3%, more than three standard deviations above its one-year moving average. The speakers said comparable historical deviations had led to short-term yield retracements and described the setup as a trading opportunity, not a long-term prediction that rates could not rise further.

“There's only been about four instances where interest rates were this deviated from the one-year moving average…”—

TLT Short Covering — A large short position against TLT could amplify a bond-market reversal because short covering would add buying pressure if yields decline.

“There's a very large short position sitting against TLT, which means if we get a reversal, there's going to have to be short covering as well, which is going to…”—

Bond Diversification — After years when very low bond yields made stocks the primary source of returns, risk-free bonds now yield above 5% while equity valuations are extended. The speakers advocated a modest shift toward bonds for diversification, not an all-or-nothing move.

“This isn't a pound the table, sell all your stocks, buy bonds…”—

FORECASTS

Yield Normalization — The speakers expected that lower oil prices, an economic development, or a headline signaling disinflation could bring Treasury yields back toward more normal levels. They presented this as a possible catalyst, not a certain forecast.

“So, you're going to get a drop in oil prices. Something's going to happen economically…”—

INTRO

Lance Roberts opens with Michael joining him to contrast TINA, the former lack of bond alternatives, with TIGA and jokes about bears, bulls, and fictional characters without pants.

TINA, TIGA; Bulls & Bears; no pants

The hosts introduce TIGA as a genuine bond alternative while previewing the revised PCE inflation data and questioning whether the Federal Reserve hiked rates too soon.

Did the Fed make a mistake in hiking rates prior to PCE Index Release?

A methodology revision lowered reported PCE inflation, prompting discussion of whether the Fed should have waited before raising rates and whether it may now pause.

Oil Prices & Inflation vs Price Levels

Oil prices affect inflation's rate of change, but a persistently high price level does not create continuing inflation unless prices keep rising.

GDP Calculations: Consumers and Businesses

Revised GDP shows unusually strong consumer spending and business investment, with both consumption and AI-related capital expenditures supporting growth.

What the Fed is Fighting

The Fed is trying to cool an overheating economy, but robust personal spending, oil prices, and AI investment are keeping demand and inflation elevated.

Where is a Trading opportunity in Bonds? (TNX)

With the 10-year Treasury near 5.3%, technical indicators suggest bonds may offer a short-term trading opportunity after an unusually large yield deviation.

Investors are Off-sides on Bonds

Long-duration Treasury yields have repeatedly retraced after reaching extreme deviations, though the potential opportunity is tactical rather than a forecast of permanently lower rates.

TINA vs TIGA: What it Means

A large Treasury short position, especially against TLT, could amplify a yield retracement through short covering, while investors should avoid chasing bonds at technically extreme levels.

How Are You Getting Paid to Diversify?

The hosts argue that the post-financial-crisis environment made stocks the only attractive return source, whereas today's yields and valuations create a meaningful bond alternative.

Equity Risk Premium or Discount (chart)

Higher Treasury and corporate yields make modest stock-to-bond diversification reasonable, not as a wholesale equity exit but as a way to improve portfolio balance.

Bonds vs Bond ETF's

Bond income can materially reduce the return burden on equities, especially when a ladder of individual bonds supplies predictable cash flows for retirees.

Why Bonds are Like Annuities

The equity risk premium is historically low, particularly in the United States, so investors are receiving little compensation for taking equity risk over Treasury bonds.

Rooting for a Technology Crash (chart)...

Stocks remain dependent on uncertain AI-driven earnings growth, while bonds can offer comparable yields without requiring that optimistic growth scenario to materialize.

Technology Stocks are Least-sensitive to Interest Rates

Individual bonds mature at face value and provide scheduled income, unlike bond ETFs, whose prices fluctuate continuously and which never mature as a fund.

Yields Take a While to Impact

A bond ladder can function somewhat like an annuity by producing income with liquidity, low credit risk in Treasuries, and the option to sell and buy discounted stocks during downturns.

Credit Spreads are Starting to Widen: A Warning Sign for Markets?

Technology earnings have dramatically outpaced non-technology earnings since the AI boom, making tech responsible for most S&P 500 earnings growth and supporting elevated valuations.

Small Business Loan Rates

Technology companies remain relatively insulated from current rates because they refinanced cheaply and have strong interest coverage, though future refinancing and new debt issuance could change that.

The Thing that the Market Cares About (Forward Earnings)

Higher rates are taking time to reach consumers and businesses, while widening credit spreads—especially among lower-rated issuers—could warn of stress before a broader market downturn.

Employment Data Preview

Small-business borrowing costs, forward earnings expectations, employment data, and labor hoarding are key indicators for whether higher rates eventually weaken demand, profits, and market valuations.

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Important Disclaimers

Not Investment Advice: For education only — not financial, tax or legal advice.

AI-Generated: Made by AI from source transcripts and may contain errors.

No Guarantees: Past performance does not predict future results; investing carries risk.

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