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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: J_Locke who wrote (50395)1/20/2006 1:31:45 PM
From: Ramsey Su  Read Replies (3) of 110194
 
J Locke,

interesting post. I have been thinking about the same issue from a different perspective.

You are suggesting with the current environment:
I regard it as a truism that if you set reserve rates at essentially zero (as is now the case) real returns on all asset classes will be driven to zero. Buy a 10-year bond today and you will get a zero real return over the next 10 years. Buy an S&P index and you will get the same. Buy real estate and your real return will be negative over the next 10 years.

I was thinking about the huge amount of money that is "invested" in derivatives. This is essentially a zero sum game with the only winner being the bookies in the long term. Since derivatives do not produce anything, growth in this market again only benefits the bookies.

Aren't you saying the same thing here?
This is exactly what should be expected when there is no functional limit to speculator borrowing. Attractive returns are quickly arbitraged away because low reserve requirements mean there is never a need for asset class rebalancing. If foreign stocks are more attractively priced than U.S. stocks, you don't sell your U.S. stocks to buy foreign stocks, you borrow more from Lehman Bros., or Deutchebank or Nomura, who borrow it from the central banks.

So basically are we all pretending to be investors when in fact playing a shell game?
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