| OldMcdonald - 11/24/2014 13:17
For things to be "priced such that there is no ROI", it necessarily implies that the price has RISEN. Meaning that people arn't in fact hoarding money, but rather investing, chasing prices and increasing them higher to keep up with inflation in investment class assets. The "return" is the decay avoided in keeping your money in an asset class (cash, 0% bank accounts) that continually buys less of another asset class every year. And there isn't ZERO ROI yet - the ROI of say a treasury at 2% or land @ 3% still beats 0% in a bank account. .
I think it is clear what is being talked about is the end result of zero interest rates. A 2% treasury rate, to me, implies that, in real terms, there is no ROI. Holding treasury paper is holding cash, not investing. Investing is what drives the economy - especially the future economy. That is what is being talked about here. The question here is - what will these zero rates do to investment?
OldMcdonald - 11/24/2014 13:17
People don't want to hoard cash when there is no return for doing it, and the cash buys less capital assets every year. And we know they are not. They are buying bonds stock, art, land anything rather than keeping it in 0% bank accounts, and we can see the evidence of that in the record NOMINAL prices before us. And they will be even less inclined to hoard cash when it starts costing them money. 2% in a bond or 3% in a acre, or 4% in a stock is better than -xx% or 0%.
What if there is no expectation that cash will return a positive ROI in real terms? That's what this discussion is about. If there is no expectation of future income, people will certainly not wish to spend the capital they have on consumption. As far as buying bonds, stock, art, land . . . sure, and the higher the prices get driven, the less likely there will be a positive ROI in real terms. At some point, everything gets zero interest rates built into price. Are you saying that stocks, land, art, etc. can continue to go up forever?
OldMcdonald - 11/24/2014 13:17
Yes, Velocity of money has declined - main street is an entirely different animal and loans to main street arn't increasing, and wages are declining - less fixed income to flow around. But for investment level purchases, there is a record amount of liquidity, and its mostly been going one way. INTO investment assets (that arn't measured by inflation stats). Another reason the V of money is declining - There is no regular churn, and volume in these assets. Its more of a one way street. Take land sales for instance. Way more buyers, not enough sellers. Stocks, bonds - all the same. The sale volume drops, so velocity drops.
Yes, and as long as zero rates have not completely been priced into these investments, they can continue to go higher. You seem to be making my point. |
Negative interest rates coming?
