David Rosenberg points out that financial repression could go on as long as 2018, here:
[T]he Fed said in its December post-meeting press release that it will not budge from its 0% policy rate until the U.S. unemployment rate drops to 6.5%. It is currently around 8%.
We have done estimates based on various assumptions and found that achieving this Holy Grail likely takes us to the opening months of 2018 or another five years of what is otherwise known as financial repression.
People think their money is safe in cash, but it isn’t.
Following on that, just compare cash in the form of Vanguard's Prime Money Market Fund with stocks in the form of Vanguard's Total Stock Market Index Fund over the last five years and you will see that while cash was relatively safe compared to stocks for the four years up to May 2012 with stocks mostly underperforming cash, since then stocks have firmly broken out, as of about May 31, 2012 (the dot on the chart grabbed from Morningstar).
The only problem is that with a Shiller p/e today of 24.26 it's an awfully rich time to be investing in stocks which have reached new all-time highs.
And the alternatives don't look very attractive either.
At this hour the gold/oil ratio stands at 15 indicating that relative to each other their prices may have normalized but both at high levels relative to the long term.
Housing prices also are at the far upper end of the long term trend prior to the bubble.
And the bond market is within 2% of its highest valuations and also remains expensive to buy.
In my humble opinion the smartest thing to buy under these conditions is any long term debt one may be carrying at a rate of interest higher than about 3.5%. To retire it one would have to deploy capital, i.e. savings, but you can hardly lock in say 6.25% for twenty or twenty-five years anywhere else more easily than by retiring a 30yr-mortgage taken out at that rate in 2007. Bonds have returned less than 5% annually over the last ten years, and one year returns have fallen below 3.5%.
Still, there is no substitute for savings.
The surest way to get a 10% return is to save one dollar of every ten earned.
