The ten year has been yielding about parity with this years CPI. Certainly fixed income investors risk negative real returns if inflation continues to accelerate. On the other hand what if this uptick in prices is just a cyclical event in a macro global deflationary trend? Or what if this is the true meaning of stagflation? i.e. A glut of labor consuming too few natural resources. At the end of the day markets are still supply vs. demand. It's easy to say one doesn't want to accept a lower yield than the rate of inflation but what if no other traditional investment vehicle produces positive returns? In other words if you knew, hypothetically speaking, that stocks were absolutely going lower then you would accept any fixed income return. Even if that return was lower than the rate of inflation. After all in a bearish equity envronment, one cares most about protecting principal. Clearly the utopian solution for pension funds would be diversification into asset classes that include commodities like oil and metals. But much like the mid 1970's we may be entering a phase where both stocks and bonds will offer negative returns in constant dollars.
I guess my point was rhetorical..... the point is: Central bankers (independent or otherwise) were historically tasked with protecting depositor's assests...now they protect each other.......... holding money in the bank is not suppose to be a loss reduction excerise. the world isn't perfect...but it's quickly getting less perfect according to the gold market
Hi Pabst, "We may be entering a phase where both stocks and bonds will offer negative returns in constant dollars" We are entering the year 2006 on a very bullsih note for the stock market. This should be a very good year for equities, much like 2003. However, this just might be the last very good year for the rest of the decade, into the beginning of next. So your statement above, maybe be indeed a very prfound one.
Review the Japanese banking system over the past decade or so. Deposits there, I believe, have provided negative returns, because interest rates were so low, and their banking system was in a major mess. Not sure, even today, if it has been fixed.
Between you and me (and now all of ET) I feel your EW work is the best technical stuff ever posted here. I too think 2006 could be a major rally year and that it's analogous to 1936, meaning the swing high may be late next year or early 2007 followed finally by a .3815 correction.
Pabst mentioned this --- "Even if that return was lower than the rate of inflation. After all in a bearish equity envronment, one cares most about protecting principal" could not agree with you more and several recent studies of income earners over $150,000 a year prove just how much the "protection of principal" has replaced all other considerations as the #1 criteria of importance {i guess the 2000 sell-off is still in the back of their minds}.
Appreciate your generous comments. We're on the same page. There is, since the 1990's are still fresh in peoples minds, and the same market vehicles that led to that massive explosive move, are still in place, other possibilities. Lets see how it unfolds. Best wishes! Tony
I have reviewed the Japanese banking system and it is niether a bank nor a system.... it is used to finance the carry trade....but you knew that
I concur! btw, i sure do enjoy reading posts from Pabst --- i can tell he is one of the sharper tacks around here.