bearfund

In Light of Peak Oil, Financial Diversification Is a Bad Idea

richjoy, I agree with you to a point. "It's different this time" are the most expensive words in finance. But I doubt your final advice to stay with the S&P500 and especially bonds, not because it's different this time but because it isn't. Explosive monetary expansion is devastating to growth; anything devastating to growth is devastating to equities. It should surprise no one that the infamous "Death of Equities" cover appeared after a decade of negative real interest rates and out of control price growth. Here we are again, with interest rates negative and prices spiraling upward. But we're not there yet: stocks are not cheap and interest rates are not high.

Equities did not die, nor will they this time. They not only survived but thrived, thrived on the discipline Volcker imposed on the money supply. True, some companies will be winners and others losers in this madness, depending mainly on how long we allow the Fed to persist in its folly. But if US equities are to recover as they have before, that folly must end. Real interest rates must soar, and with prices rising rapidly, nominal rates must soar even faster. For this reason, I say that your parting words are self-contradictory: if equities are to be good investments again, surely anyone holding bonds must lose his shirt in the process. If these events do not take place, US equities really will die, to be followed in short order by Treasuries as the American economy collapses. You cannot have it both ways, but bonds are toast in either. I challenge you to describe a scenario in which Treasury prices do not decrease substantially over the next decade.