The Old Faces the New Logic

Financial analysts are mulling over the effect of rising interest rates on record equity indices.

Logically, money flows to the highest rate of return with the lowest possible risk. Illogically, however, bond prices have been real high, with money flowing into stocks. It is not a contradiction but it is puzzling, beyond the edge of the effect, which has been described as the new normal.

A logical description of why anyone would buy a 10 year t-bond at such a low rate is because it exists without risk. Pension funds have been buying bonds to hedge the probable risk, perceiving that the risk of buying stocks is beyond the edge of a reasonable risk-to-return.

They are right! The new normal is just the old way of doing things.

A sucker’s market forms, creating a bull market, with a seemingly unrelenting trend. Resistance is weak. It resists nothing, until you buy into it, thinking you have missed out on all the value. What you really did, however, was avoid all the risk in the form of resistance. You did not reduce the risk, or mitigate it, but you did avoid going beyond the edge of the effect that logically resists yielding to the fully assumed risk of loss (the zero-hedge effect).

About griffithlighton

musician-composer, artist, writer, philosopher and political economist (M.A.)
This entry was posted in digital art, Political-Economy and Philosophy and tagged , , , , . Bookmark the permalink.

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