I am thinking with very low inflation when bonds yield at or over SP div. and earning gains the stock market can get dicey and weak...however if there is some inflation this could negate the bond/stock equilibrium and actually be good for the stocks....
IMO- a little inflation is a whole lot better than a little deflation. We are familar with the former; while hints of the latter tend to create a mild panic. DS
I think that in the long run we may be at closer to ideal inflation rates right now at somewhere between 3% and 4%. I think a target of 2% is too low and invites deflation. If you want to know about deflation just ask your Great-grandfather(or somebodies Great-grandfather)
"Moderate" inflation... or any inflation benefits only the Gummint. Deflation is a necessary and beneficial adjustment to periods of inflation. However, such periods are uncomfortable (kind of like "it's not fun to diet after 5 years of daily pigging out" at the food trough), so the Gummint and Fed have adopted the policy of "papering over" every effort to rebalance. In the long run, the Gummint will debase the $USD (aka $Charmin) so that the buying power of American's money will be bupkus.... in other words, the Gummint will bankrupt nearly all US citizens. Inflation is EASY... not good.
Moderate inflation promotes reinvestment of $$$. If I know that $$$ sitting my account will be worth more tomorrow in the form of cash versus investing in a company that has to service higher real debt, I will leave my money in cash. Furthermore, the companies that aren't debt intensive won't be as interested in reinvestment if their cash will appreciate on its own. That moderate inflation also allows you to pay back any future debts at a discount in real-value terms...that's why the government likes to print.