From the perspective of US financial markets, a Japanese-style lost decade has defined the performance of equities and bonds since the start of 2000. From the heady days of the technology bubble, the S&P 500 is 11 per cent lower over the decade, when you include the reinvestment of dividends. In contrast, an index of long-term Treasury bonds has risen more than 116 per cent, according to Barclays Capital. The doubling in the value of long-term Treasuries helps explains why the famed "bond vigilantes" of prior decades have been missing in action. This has largely been a decade of disinflationary forces thanks to the internet and globalisation. There have been two very aggressive cycles of rate-cutting since 2000 by the Federal Reserve and it is little wonder that bonds have been the big beneficiary. Instead of "bond vigilantes" worried about inflation and rising deficits, the decade is described by some as one where "risk vigilantes" have ruled the roost. When the technology bubble popped, the risk of a nasty recession and deflation meant markets moved quickly to price in big rate cuts. On that score, the Fed delivered - an extended period of easy money softened the blow of recession in 2001, sowing some of the seeds of a massive mortgage and credit bubble which culminated in the financial crisis of 2007/2008. Today, the current policy prescription of even cheaper money has many worried about the value of the dollar and the risk of higher inflation in coming years, given the outlook of massive budget deficits and record issuance of US Treasuries. Amid fears of a new financial bubble in commodities and bonds, some forecast the Fed could start raising rates late next summer and wean the US economy off easy money.
From the perspective of US financial markets, a Japanese-style lost decade has defined the performance of equities and bonds since the start of 2000.
From the heady days of the technology bubble, the S&P 500 is 11 per cent lower over the decade, when you include the reinvestment of dividends. In contrast, an index of long-term Treasury bonds has risen more than 116 per cent, according to Barclays Capital.
The doubling in the value of long-term Treasuries helps explains why the famed "bond vigilantes" of prior decades have been missing in action. This has largely been a decade of disinflationary forces thanks to the internet and globalisation. There have been two very aggressive cycles of rate-cutting since 2000 by the Federal Reserve and it is little wonder that bonds have been the big beneficiary. Instead of "bond vigilantes" worried about inflation and rising deficits, the decade is described by some as one where "risk vigilantes" have ruled the roost.
When the technology bubble popped, the risk of a nasty recession and deflation meant markets moved quickly to price in big rate cuts. On that score, the Fed delivered - an extended period of easy money softened the blow of recession in 2001, sowing some of the seeds of a massive mortgage and credit bubble which culminated in the financial crisis of 2007/2008.
Today, the current policy prescription of even cheaper money has many worried about the value of the dollar and the risk of higher inflation in coming years, given the outlook of massive budget deficits and record issuance of US Treasuries. Amid fears of a new financial bubble in commodities and bonds, some forecast the Fed could start raising rates late next summer and wean the US economy off easy money.
Instead of "bond vigilantes" worried about inflation and rising deficits, the decade (2000-2010?) is described by some as one where "risk vigilantes" have ruled the roost.
Oh, wait! Vigilantes. Quantrill's Raiders? With whom Jesse James and much of the James-Younger Gang served during the Civil War. They fancied themselves "vigilantes" to the end, robbing banks from Coffeyville, Kansas to Northfield, Minnesota. Perhaps FT means that modern "risk vigilantes" rob banks from the inside. Or is that just because my dissonance fuse is blown? As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
