Replies to post #5916 on Foreign Correspondence

[Ace Hanlon]

I agree that things can unravel pretty quickly though a doubt a 1987 type crash.

There is one key difference I see between now and the last stock market peak in early 2000.

Back then the Fed had aggressively hiked short rates and long rates had gone up in tandem. But today long rates are about the same as they were when the Fed began tightening.

There is a widespread view that long rates will remain low as far as the eye can see and this belief is a key force behind the current mania in stocks and real estate IMHO.
This belief did not exist back in 2000.

I find it hard to envision a grizzly bear for stocks and real estate as long as bond yields plunge from already low levels at the slightest sign of weakness in the economy.
A bear market yes, but a 2000-2002 type plunge no.

For whatever reason the bond market (and this includes foreign bond markets) has evolved from an arena where investors can earn decent inflation-adjusted returns to little more than an instrument to keep the bubbles inflated and corrections modest as long as possible.