45 ms·
This “theory” for equities growth is a joke. There is a very simple reason for it and plenty of non-tech baskets show the same 2 yr (or longer) pattern. Simply
by sulam 9y ago
This “theory” for equities growth is a joke. There is a very simple reason for it and plenty of non-tech baskets show the same 2 yr (or longer) pattern.
Simply put, cash and cash equivalents are generating historically low returns. So you put your money in equity.
(And if you are a retiree you put it in stocks with dividends. Look at the growth in dividend-generating stocks like energy, mining and metals and it makes FANG look shitty. This is fixed income portfolios trying to achieve their needed goals.)
Ironically, it’s GDP growth that will stop the music, because enough of that will generate inflation and make it rational to hold something besides US treasuries. In fact it’s already starting to happen for non-US markets (although slower than all the hedge fund smarties thought, therefore the complete bath they’ve taken the last year).
The length of our equities boom is inversely correlated with GDP growth. This cycle is (much) longer than the historical average simply because real growth has been so low. Normalize against aggregate growth over a cycle and we have a year or two left in the current one (assuming job, GDP, wages etc continue to be anemic - if they pick up rapidly things will rapidly shift).
- roymurdock 9y ago> we have a year or two left in the current [cycle] Are you saying that we have a year or two until we see a pick up in productivity (driving real growth and GDP), which will shift investment out of equities and into? Cash and cash equivalents? Or are you saying that we have a year or two until we see a recession (decline in GNP), triggered by a flight from the equity markets?
- TheAdamAndChe 9y agoInferring from "Ironically, it’s GDP growth that will stop the music," it seems to me like they're saying that a lack of increased productivity combined with a tightening labor market will increase wages and thus inflation while not affecting equity returns, shifting growth from equital holdings to cash holdings. I'm not so sure it'll happen personally. The Fed seems to be raising interest rates before inflation has a chance to increase, but we'll see.
- sulam 9y agoI'm making a (perhaps reflexive) statement about economic cycles, that they are effectively defined as a period of growth followed by a shock. Without growth, there is no shock. Our current cycle has been characterized by very low growth. It is also much longer than typical, but I think this simply follows from the fact that we haven't had a lot of growth. Growth seems to be picking up, though, and I think over the entire period of the cycle will soon be "enough" to trigger the next cycle.