– How can opposed investment choices (stock, bonds, cash) all drop at the same time?


How can inflation be so high (cash dropping in value) yet stocks and bonds are both also dropping in value? Is it simply just that the whole economy is (and will be) so awful that there is nowhere with any upside?

In: 6

Lots of people cashing out of their investments at the same time, or investing in a different asset class (e.g. commodities or property).

Value of cash goes down, which means people have to stretch the money they have further. That, in turn, means less people have disposable income, so less people are willing to invest. Less people willing to invest tanks investment values.

Well simply, they are not at all opposed to each other. They in fact are all tied together.

Bonds are a debt instrument.
Stocks are an equity instrument.
Cash is a value instrument.

In a vaccum when the value of cash goes down a bit stocks go up, excess cash goes to bonds which go down. When stocks go down, needed cash comes from bonds which go up.

When such a situation arises that cash goes down (way) more than it should it’s easy to pay off debts (bonds) which *technically* are less valuable than anticipated so they also drop. This should make stocks go up though they can only go up so much so fast. When they go beyond a wall they’re just excess cash without actual equity.

This also makes cash go down further as it’s harder to get debt which makes it harder to do business that makes stocks drop. Those with excess cash use it up in place of debt. It can continue to spiral down though how far is the million dollar question.