Originally posted by normbenign
Hard to find any solid investments. Bonds are risky due to historic low interest rates, surely far below unrestricted market rates. When interest rates go up, bond yields go down.
Top of the market investors in equities face great risk, especially given the huge amount of Fed dollars floating around the system, and the massive bad paper still in port ...[text shortened]... for individuals who may not have the knowledge or research tools to evaluate individual stocks.
No, when interest rates go up bond yields go up with them, not down. The price of bonds goes down, and therefore the price to the issuing party of raising the debt increases. A government may have to raise new debt to pay the principal on old debt, which means that bond yields rising can be bad news. I assume that this is what Peter Schiff has in mind.
The top of the market stock is fine, provided you want income and don't mind paying a high price. If the companies with P/E ratios in excess of 50 can provide dividend growth then the investment isn't so bad. Central bank rates are not likely to come down soon.
Normally a bond sell-off would herald renewed risk appetite from investors, in the current climate they would tend to pump money into the top of the market rather than take on the more risky stocks. Unless the U.S. actually defaults I can't see a bond sell-off happening until there's an asset class to invest in. The interesting question is whether the current regime of high asset prices will become locked in as people expect to pay that much - and if asset price inflation implies there will be commodity price inflation; if so that may explain why the yields on index linkers are negative. The yields on 10 year bonds have dropped to around 1.96% recently, there's not much sign of a sell off yet. Although ETF's have been selling gold recently, which has the same dynamic as a bond sell-off.
The thing with Q.E. is that if everyone else is doing it you have to do it too. Since investors are looking for stocks which are growing their profits, overseas investors will buy shares in a non-Q.E. countries premier stocks removing the profits from the domestic market and driving up asset prices anyway - so everyone is forced into quantitative easing. more or less competitively to keep as much as possible of their premier capital domestic.