Stocks in 1974 or Japanese Bonds in 1996?

Take the collapse of interest rates, please. It has done nothing to stimulate capital spending -- what, Cisco's going to build more routers? -- and it has done much to finance overinvestment in housing. Low interest rates penalize savers and investors, and the flattening of the yield curve from the long end is stressing mortgage lenders and banks who depend on a positive carry.

Between war and muddling through, I prefer muddling through (as a personal aside, most people describe me as hawkish, and I am a devoted student of military history). If we continue the inane and unproductive saber rattling, the uncertainty will suppress credit demand and risk-taking, and staying in bonds, even at their present risk/reward, is likely to be the best alternative.

Next time, next time we'll get it right.

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