Nice People 13: Nice Save

Generali

purch wrote: »

I always used to chuck the word "secular" into these kind of discussions.

Always made me laugh to watch the faces of the Spot dealers as they tried to work out what it meant.

Yield has always been the ultimate goal of investors, so in today's climate it makes sense to think that the only place to get some will be dividends.

The point really is the logical outcome of the chase for yield. After of all, equity yields can never go negative so you can chase the height indefinitely high.

Ok that would be pretty dumb but then so is a Danish Bank paying customers to borrow money or people paying for the privillege of lending money to Nestl!.

michaels

SO does the appetite for yield plus low interest rate environment suggest that there are limited returns to investment in general predicted, which again highlights the value of any sort of income stream (yield) and also suggests that companies should return any profits rather than invest? Sounds like a recipe for deflation.

And of course my theory is that the whole thing is caused by the rise of income and wealth inequalities so that there is too much wealth looking to be invested and not enough income looking to be spent....no doubt demographics are an issue here too.

michaels

Generali wrote: »

The point really is the logical outcome of the chase for yield. After of all, equity yields can never go negative so you can chase the height indefinitely high.

Ok that would be pretty dumb but then so is a Danish Bank paying customers to borrow money or people paying for the privillege of lending money to Nestl!.

Any evidence yet of high denomiation Swiss and Danish bank notes being difficult to source?

Generali

michaels wrote: »

SO does the appetite for yield plus low interest rate enviroemnt suggest that there are limited returns to investment in general predicted which again highlights the value of any sort of income stream (yield) and also suggests that companies should return any profits rather than invest? Sounds like a recipe for deflation.

Well what does it predict? This is where I start going off-piste into my own thoughts rather than reporting:

It means the income returns may become limited and perhaps now rather than tomorrow is the time to lock in yield because it ain't gonna be there in a few years. If CHF is paying -2.0% in a couple of years, perhaps owning water utility shares with regulated earnings paying a yield of 1% looks attractive. A P/E of 100 is a very, very long way above where we are now. Not that I'm suggesting that as a target.

michaels wrote: »

And of your my theory is that the whole thing is caused by the rise of income and wealth inequalities so that there is too much wealth looking to be invested and not enough income looking to be spent....no doubt demographiocs are an issue here too.

I like that analysis but there's something about it that makes me uneasy. I have a feeling that the tail is wagging the dog with it, that the 'death' of inflation and ZIRP has pushed up the price but not value of assets.

Agree about demographics. Oldies love yield.

purch

michaels wrote: »

Sounds like a recipe for deflation.

Yes, the knee jerk reaction to inflation/deflation will always cause more of the same.

Generali

purch wrote: »

Yes, the knee jerk reaction to inflation/deflation will always cause more of the same.

A very good point was made today: inflation rates in 5 years time are absolutely key to understanding the great trade today. Inflation rates of 5% are going to mean huge losses on corporate bonds where you pay to lend them money. Even more so mortgages where you pay borrowers to borrow.

I just have this nagging doubt that all this is going to go really horribly wrong. Really badly.

Oh well, make hay and all that.:EasterBun <<< yield investor

Nikkster

Am I on the right thread? :eek:

Interesting chat though

Generali

Nikkster wrote: »

Am I on the right thread? :eek:

Interesting chat though

Sorry, want to be able to delete once a few people I think will be v. interested have seen. Most have now I think.

michaels

Generali wrote: »

Well what does it predict? This is where I start going off-piste into my own thoughts rather than reporting:

It means the income returns may become limited and perhaps now rather than tomorrow is the time to lock in yield because it ain't gonna be there in a few years. If CHF is paying -2.0% in a couple of years, perhaps owning water utility shares with regulated earnings paying a yield of 1% looks attractive. A P/E of 100 is a very, very long way above where we are now. Not that I'm suggesting that as a target.
.

So if we assume that risk free yields are zero (negative) we then need to decide what risk premia different asset classes like equities and housing should have. Efficient markets would suggest that current valuations should reflect these risk premia as currently valued so the only way for prices to increase would be a reduction in risk premia demanded (=lower perceived levels of risk or lower premia required for taking the same level of risk)...is this what is being forecast or is the suggestion that risky asset vales have not yet adjusted to take into account the reduction in returns for zero risk assets? Of course asset risk is not fixed(imho) but is a function of price so ceteris paribus wouldn't the risk spread be expected to increase as the risk free yield declines?

michaels

Generali wrote: »

A very good point was made today: inflation rates in 5 years time are absolutely key to understanding the great trade today. Inflation rates of 5% are going to mean huge losses on corporate bonds where you pay to lend them money. Even more so mortgages where you pay borrowers to borrow.

I just have this nagging doubt that all this is going to go really horribly wrong. Really badly.

Oh well, make hay and all that.:EasterBun <<< yield investor

How is it going with the Swiss Franc mortgage