An article from the Wall Street Journal this morning offers some key insight about asset prices today. The article is speaking about the garish impact that central bank herding is having in driving interest rates to zero and below in many government bond markets. See Bonds markets: growing ever more bizarre:
Central banks have always been able to make waves in markets. But never have they had such far-reaching effects, nor so quickly. The world of bonds is being turned upside down as a result.
The WSJ then goes on to explain the absurdity of how government bonds in many countries are now priced to deliver zero and even somewhat negative income when held to maturity. All true.
What is not mentioned (conveniently overlooked by the finance-sponsored-stock-promoting media) is that income payments and maturity for government bonds are contractually prescribed. Stocks, on the other hand, have no such promises. Stocks have no maturity date and no capital guarantees or contractually prescribed income payments of any kind. Meanwhile stock valuations today are so excessive they are priced to deliver negative returns for at least the next 7 years, with breath-taking volatility along the way.
How long will today’s holders need to wait to get back their capital presently held in stocks? The answer is however many years it takes. And that does not fit well with finite human life cycles.
It took 25 years to be able to sell assets near the previous secular peak pricing reached in 1929. By then, most of the previous holders had long since died, or sold out of panic or necessity for cash. And even where some were able to hang on for 25 years, only the securities that weren’t written off in bankruptcy were still trading.
Bottom line: extremely over-valued asset prices are toxic to human finances. And the issuers and market owe stock holders nothing.