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I think the dynamic of the US equity market has changed. In the old days, you can balance your portfolio between stock and bond. This is portfolio advice from B

I think the dynamic of the US equity market has changed. In the old days, you can balance your portfolio between stock and bond. This is portfolio advice from Benjamin Graham's The Intelligent Investor. We can no longer do this because interest rates are heading to 0. Bond investors don't make money from interest rates. Bond traders benefit from rate drop. Bond was an investment. It's now destroyed. We end up with cash and equity. There's a lot of money pumping into the market by central banks. Markets are no longer free. Central banks manipulate their markets. With these kinds of manipulations, we get diminishing returns. Let's say the economy gets back on its feet. Where does it get the leverage to invest? We're overloaded with debt. The interest rate is probably 0 or negative at that point.

aeternum 7y ago
The counter-argument to this is that even with the money being pumped into the market by the central banks, we are not seeing significant inflation in consumer goods. This implies that the money is being put to work efficiently and resulting in productivity and QoL improvements for society as a whole.
- dnprock 7y ago
  We have not seen inflation. But we're seeing slow growth and negative interest rate. These are signs of diminishing returns. The market has lost its check-and-balance. Bond and lending were supposed to carry risk and skin in the game. Right now, overall growth is delivered through the Fed pumping money. There is no check-and-balance. With this crisis, governments will likely pump more money. That'll distort the market further.
  - aeternum 7y ago
    What we've seen throughout history is that economies are typically ruined by two things: 1) Governments or central banks printing or issuing (often not physically) too much money, resulting in inflation that spirals out of control. 2) Governments, central banks, individuals, businesses hoarding money due to fear or other reasons, resulting in deflation that spirals out of control. Those two are a form of check & balance. The thesis that most central banks now use is that if we can keep inflation steady, then we will have relative economic stability. The interest/lending rates are simply tools through which inflation can be moderated.

aeternum 7y ago

The counter-argument to this is that even with the money being pumped into the market by the central banks, we are not seeing significant inflation in consumer goods. This implies that the money is being put to work efficiently and resulting in productivity and QoL improvements for society as a whole.

dnprock 7y ago
We have not seen inflation. But we're seeing slow growth and negative interest rate. These are signs of diminishing returns. The market has lost its check-and-balance. Bond and lending were supposed to carry risk and skin in the game. Right now, overall growth is delivered through the Fed pumping money. There is no check-and-balance. With this crisis, governments will likely pump more money. That'll distort the market further.
- aeternum 7y ago
  What we've seen throughout history is that economies are typically ruined by two things: 1) Governments or central banks printing or issuing (often not physically) too much money, resulting in inflation that spirals out of control. 2) Governments, central banks, individuals, businesses hoarding money due to fear or other reasons, resulting in deflation that spirals out of control. Those two are a form of check & balance. The thesis that most central banks now use is that if we can keep inflation steady, then we will have relative economic stability. The interest/lending rates are simply tools through which inflation can be moderated.