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Short-term traders and the 2-and-20 crowd may be able to take advantage of the current asset ramping perpetrated by the Fed, but long-term investors will continue to lose money in real terms. On a constant-dollar basis, or inflation-adjusted basis, investors will lose value on their investments in terms of the purchasing power of their assets.
See charts 1-4, 6
12 Month Performance
SPX - UP 8.5%
DJIA - UP 11%
COMP - UP 12%
GOLD - UP 30%
12 Month Performance Relative to Gold
SPX - DOWN 22%
DJIA - DOWN 19%
COMP - DOWN 18%
See chart 5
Future economic conditions/inflation expectations are being priced into the 30 year while the current state of the real economy is being priced into the short end. The long end of treasury curve is selling off while traders/investors are still chasing the short end.
Chasing returns by buying U.S. stocks , (especially at current levels), because the Fed is destroying the dollar may be one of the most irrational exuberances we have ever seen.
Absolutely agree with you. The bubble game continues and it is too obvious. After the new economy bubble and the real estate bubble, we now can watch the US government debt bubble growing. In real terms the S&P 500 peaked in 2000, so the years 2001 - 2008 were just a flash in the pan. In 2008 the private sector bubble was mutualized and now the US government and the FED have taken over to grow it.
Buying US stocks can be explained by bounded rationality. Investors know they should not do it, but what are the alternatives? Buying treasuries does not look attractive, as interest rates cannot drop into negative territory. Commodities cannot absorb all the liquidity, and high commodity prices will harm the economy.
If the economy is not working, it might be difficult to find any long term investment that generates decent returns. It may take another decade until the US has repaid the debt accumulated during the last decade. Ponzi schemes do not work, whether they are run by the private sector or the government.
