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David Levy is chairman of the Jerome Levy Forecasting Center, a Mount Kisco, New Yorkbased economic research and consulting firm.
Perhaps I missed it, but you forgot to discuss the role of Fed purchases in pushing bond prices higher.Without operation twist, etc... where would longer term rates be?There is no relationship between dividend yields, earnings yields and treasury yield curves.Any "explanations" based upon a perceived relationship is merely conjecture.Underlying your analysis is the idea that money creation does not affect inflation, and the idea thatpreferences for asset classes do not change through time. Investors preferences for assets are largely driven by recent performance. Hence, the unbelievable performance of fixed income at risk-premium free rates. The supply of government debt is increasing and will most likely increase in the near future. This alone will push rates higher, especially once the Fed gets our of the markets.The expected return from owning fixed income investments, higher quality at least, is negative over any time horizon of 2 years or longer.
Apr 13 2012 at 5:12 PM EST
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