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it is not equity that is overpriced. it is that printed dollar that is overpriced (cash is trash). any bond guarantees long-term loss. In 1990, 2k, 2008 invest

by slt2021 6y ago

it is not equity that is overpriced. it is that printed dollar that is overpriced (cash is trash). any bond guarantees long-term loss. In 1990, 2k, 2008 investors could escape from equities to bonds with 6% yield, but now they have nowhere to go. That concludes that this bubble will continue as long as interest rate remains near zero. Federal Reserve basically cornered the entire market into equities, investors have literally nowhere to go. even if 1% of equities capital escape into any other asset class - emerging markets, real estate, alternatives, crypto, whatever - it will create even more gigantic bubble in that asset class that will surely pop without the FED's support

viburnum 6y ago
Why were bond interest rates ever that high in the first place?
- freeone3000 6y ago
  The overnight lending rate in 2007 was 5.5%. If that was the cheapest possible you could ever borrow money for even the shortest term, 6% for a long-term bond is downright cheap.
  - viburnum 6y ago
    Right, why was that the overnight lending rate?
    - freeone3000 6y ago
      The federal reserve sets this rate directly. They chose it to be at 5.25% (correcting my error in the above) because the economy was going well, we had less than 5% unemployment, and a high rate was generally considered necessary to fight inflation. https://www.federalreserve.gov/newsevents/pressreleases/monetary20070321a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... is their statement.
      - viburnum 6y ago
        That's really cool you looked up the press release! Yeah, that's right, the central bank sets the rate. But the government could have managed inflation by other means, by regulation, raising taxes (perhaps on those who could most easily pay them), cutting spending, or adjusting trade policy, rather than giving investors 5%/year for doing no work.
        freeone3000 6y ago
        You seem to have the purpose of rate increases reversed. Low interest rates actually help investors more. You're able to trade on margin for cheaper, which is the real driver of large investment firms. The rate is raised when you want money to leave the system.
        viburnum 6y ago
        Financial institutions (such as hedge funds) borrow money for leverage but the rentier class as a whole are creditors. Raising rates pulls money out of the system but it also gives money to rentiers.
icelancer 6y ago
>> That concludes that this bubble will continue as long as interest rate remains near zero. Yeah, I think that is the generally accepted understanding of what's happening right now especially with additional stimulus / QE methods. Think you are already seeing equity escape into other asset classes in commodities and cryptocurrency, too.
- slt2021 6y ago
  and look at gigantic bubble that was created in crypto, because of that asset rotation - do you think crypto (which is funny money) is fairly valued as compared to real companies with real cash flows? the only right strategy is what China have been doing - they have been selling US treasuries and buying real assets left and right across Asia and Africa - securing their grip on rare earth minerals, gold/silver, commodities, emerging markets, infrastructure projects and land.
  - icelancer 6y ago
    No question. I think you can make the argument Ethereum (and to a lesser extent, Polkadot) could be fairly valued due to what it represents (platform for distributed applications, I refuse to use the shorthand phrase for it or decentralized finance), but BTC is simply just gold / reserve currency in nature and always will be per the Blockstream team's desires. So there's no way BTC's valuation relative to other stores of value is correct. There are potential paradigm shifters in the cryptocurrency space as much as HN wants to shit on it, but I also agree with your larger point more than I disagree with it.
    - slt2021 6y ago
      if there is new better crypto with some guarantees of value - all BTC folks will sell at the top and jump ship. For example imagine European central bank creates its own "green" reserve crypto mined only with green energy and guarantees free circulation and acceptance in eurozone. Embrace-Extend-Extinguish framework can be applied to BTC to kill it with a better alternative, and the higher price for BTC is the stronger incentives to sell at the peak and move elsewhere to more stable place

viburnum 6y ago

Why were bond interest rates ever that high in the first place?

freeone3000 6y ago
The overnight lending rate in 2007 was 5.5%. If that was the cheapest possible you could ever borrow money for even the shortest term, 6% for a long-term bond is downright cheap.
- viburnum 6y ago
  Right, why was that the overnight lending rate?
  - freeone3000 6y ago
    The federal reserve sets this rate directly. They chose it to be at 5.25% (correcting my error in the above) because the economy was going well, we had less than 5% unemployment, and a high rate was generally considered necessary to fight inflation. https://www.federalreserve.gov/newsevents/pressreleases/monetary20070321a.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... is their statement.
    - viburnum 6y ago
      That's really cool you looked up the press release! Yeah, that's right, the central bank sets the rate. But the government could have managed inflation by other means, by regulation, raising taxes (perhaps on those who could most easily pay them), cutting spending, or adjusting trade policy, rather than giving investors 5%/year for doing no work.
      - freeone3000 6y ago
        You seem to have the purpose of rate increases reversed. Low interest rates actually help investors more. You're able to trade on margin for cheaper, which is the real driver of large investment firms. The rate is raised when you want money to leave the system.
        viburnum 6y ago
        Financial institutions (such as hedge funds) borrow money for leverage but the rentier class as a whole are creditors. Raising rates pulls money out of the system but it also gives money to rentiers.

icelancer 6y ago

>> That concludes that this bubble will continue as long as interest rate remains near zero. Yeah, I think that is the generally accepted understanding of what's happening right now especially with additional stimulus / QE methods. Think you are already seeing equity escape into other asset classes in commodities and cryptocurrency, too.

slt2021 6y ago
and look at gigantic bubble that was created in crypto, because of that asset rotation - do you think crypto (which is funny money) is fairly valued as compared to real companies with real cash flows? the only right strategy is what China have been doing - they have been selling US treasuries and buying real assets left and right across Asia and Africa - securing their grip on rare earth minerals, gold/silver, commodities, emerging markets, infrastructure projects and land.
- icelancer 6y ago
  No question. I think you can make the argument Ethereum (and to a lesser extent, Polkadot) could be fairly valued due to what it represents (platform for distributed applications, I refuse to use the shorthand phrase for it or decentralized finance), but BTC is simply just gold / reserve currency in nature and always will be per the Blockstream team's desires. So there's no way BTC's valuation relative to other stores of value is correct. There are potential paradigm shifters in the cryptocurrency space as much as HN wants to shit on it, but I also agree with your larger point more than I disagree with it.
  - slt2021 6y ago
    if there is new better crypto with some guarantees of value - all BTC folks will sell at the top and jump ship. For example imagine European central bank creates its own "green" reserve crypto mined only with green energy and guarantees free circulation and acceptance in eurozone. Embrace-Extend-Extinguish framework can be applied to BTC to kill it with a better alternative, and the higher price for BTC is the stronger incentives to sell at the peak and move elsewhere to more stable place