Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: J_Locke who wrote (50395)	1/20/2006 11:36:33 AM
From: el_gaviero	Read Replies (1) \| Respond to of 110194

Very interesting post. If you are right (that all assets get bid up until they provide a zero rate of return) then shouldn't we buy gold, an asset that throws off no income but does at least have a long history of being a reliable store of value?

To: J_Locke who wrote (50395)	1/20/2006 1:31:45 PM
From: Ramsey Su	Read Replies (3) \| Respond to 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?