2 ms·

Where else are rich people going to park their money? The demand for investable assets has gone way up because rich people have gotten much richer, and rich peo

Where else are rich people going to park their money? The demand for investable assets has gone way up because rich people have gotten much richer, and rich people around the world (such as newly minted emerging market billionaires) often prefer American assets for liquidity and good legal protections. I'm sure these investors would prefer that stocks earn more than 2.5% but that's just the going rate now. What alternatives do they have? Bonds yield basically nothing.

TuringNYC 6y ago
Not only do bonds yield nothing, they yield less than zero once you consider inflation. And long bonds yield near zero but...you have huge bond price risk if rates rise again. There is no real choice now, you have to park the cash somewhere...and so it ends up everywhere from stocks to commercial real estate to VC (and eventually into our tech salaries, into rent, to the landlord, to the bank, and back into MBS in institutions :-)
AngrySkillzz 6y ago
Exactly. Asset prices are not determined by central bank actions, there is a third component that pushes both asset prices and central bank policy - the global supply/demand of savings vs investment opportunities. Which is driven mostly by demographics. China's massive working class, and the unprecedented rate at which they are getting wealthier, and their savings rate which is like >10x the average US citizen means there is a huge increase in the global supply of savings. Which bids up asset prices and pushes down yields, as savers compete with each other to buy up the extant profitable and safe opportunities. Central banks are the on the receiving end of this too: over-saving pushes down the natural rate of interest, which means policy rates must be lower to respond (unless you want to condemn some working Americans to unemployment).

2 ms·

Where else are rich people going to park their money? The demand for investable assets has gone way up because rich people have gotten much richer, and rich peo

by viburnum 6y ago

TuringNYC 6y ago
Not only do bonds yield nothing, they yield less than zero once you consider inflation. And long bonds yield near zero but...you have huge bond price risk if rates rise again. There is no real choice now, you have to park the cash somewhere...and so it ends up everywhere from stocks to commercial real estate to VC (and eventually into our tech salaries, into rent, to the landlord, to the bank, and back into MBS in institutions :-)
AngrySkillzz 6y ago
Exactly. Asset prices are not determined by central bank actions, there is a third component that pushes both asset prices and central bank policy - the global supply/demand of savings vs investment opportunities. Which is driven mostly by demographics. China's massive working class, and the unprecedented rate at which they are getting wealthier, and their savings rate which is like >10x the average US citizen means there is a huge increase in the global supply of savings. Which bids up asset prices and pushes down yields, as savers compete with each other to buy up the extant profitable and safe opportunities. Central banks are the on the receiving end of this too: over-saving pushes down the natural rate of interest, which means policy rates must be lower to respond (unless you want to condemn some working Americans to unemployment).