Originally Posted by rbmrtn
FED is pumping money in, should lead to inflation but nobody is taking it so they are pushing on a string. couple with high unemployment and no wage inflation pressure...
Could be setting up for a long time of low interest rates and deflation instead of inflation.
Yes, rbmrtn, I've pretty much come to that conclusion. Inflation may not remain as low as we might like, but interest rates will stay low anyway, and with the global economy and employment in a funk, there is no reason to expect a runaway inflation scenario for a long, long time.
So, I hold longer duration bonds than I used to as I am not worried about interest rate risk. We are in a period of "financial repression" which in practice means the "safe" bonds like treasuries don't keep up with inflation and if you are trying to live off interest income alone, you will be forced to move to corporate and/or high yield bonds to have enough income. We may go into a period where stocks pay out more in dividends than many bond asset classes - especially if the stock market P/E keeps shrinking.
The current S&P 500 Dividend Yield is 1.97% (based on dividends paid out through March 2012).
Contrast this to US 10yr treasury at 1.58% and US 30yr treasury at 2.65%.
S&P 500 Dividend Yield Chart
Might average stock yields return to the 3% that was typical in the 1960s?
Once upon a time it was considered "normal" for stock dividends to be a lot higher than interest paid out by comparatively super safe assests like US treasuries.