The Dow is doing well – and people are wondering why! – and nobody is sure why. Cannot blame the American investor / saver.
Let us look at what are his options
1. Government debt /Gilt: clearly the yield is a huge challenge. If your money doubles in 72 years while your cost of living doubles in 14 years, you are losing big time. Most retail investors may not understand the meaning of Real return, but all of them realise that debt investment will not grow.
2. The American investor does not have the government borrowing (or looting?) in the form of NSC, PPF, KVP, etc.
3. Banks pay almost NO interest on bank deposits, so it has to be FD (called CD) or Money Market Mutual funds. This is a pathetic state of affairs, but the banks really have no interest in your bank account.
4. The American investor now sees many corporates borrow at rates better than what the govt is offerring. This is sad because here he may not have enough options to lend direct.
5. He can invest in emerging markets – but he has been conditioned to think that India, China, Brazil, Mexico are DANGEROUS but France, Greece, UK, Germany are great countries.
6. Most world investors have to recalibarate their risky and non risky parameters if they have to invest for a real return….
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