In almost 30 years of writing about equities I cannot recall a market as strange as this one. Sure, there have been bouts of irrationality over the years: the dot.com boom made no sense and the mining boom got out of hand. But some unusual dichotomies are at play today.
Our share market hit a record high this week, despite the yield on the benchmark 10-year Australian Government bond hitting a record low. Optimists say equities look attractive relative to bonds; pessimists say falling bond yields are signalling a deteriorating economy.
Several European countries now have a negative bond yield and there is a chance Australia could join them or get close within two years. Some economists believe the terminal rate (low point) for the Reserve Bank official cash rate is 50 basis points, implying another two rate cuts.