Yields are low throughout the world, and despite the rising equity markets low yields on equities mean low long run returns on them as well as bonds. So we may actually be facing an end to the decade characterized by growth punctuated by either choppy to low returns on financial assets or a massive bubble as the economy stays relatively stable and people extrapolate that in a search for return that drives long run returns even lower. If that happens watch your wallet as yields climb and asset values fall upon deflation of the bubble. My guess? Choppy returns with a couple of 2000-2003 like collapses in various segments of the asset markets every time the economy slows as assets move unevenly to more normal valuation levels. Why are yields low on financial assets? Excess liquidity which is positive for growth, but negative for long term investment returns is one theory (while growth is good due to a low cost of capital, the high valuations drive down the yield per dollar actually invested.)
If true watch risk carefully! This is not the time to be reaching for yield or Goldilocks scenario returns even if growth is solid.
The thesis that it is the monetization of an aging western population’s assets that is providing this excess liquidity is held by Sam Zell amongst many others.
Oh, this is a listening note, which is supposed to be about music. And so it is, here is Sam Zell. (Click on the Theory of Relativity icon)
Hat tip: Greg Mankiw.
Jon Henke sends along this for all of us econo-music geeks. I like Sam Zell better, though not quite as much as the Posies.
[youtube ipJTqCbETog]
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About Lance
I want to thank everybody who has encouraged me over the past few years to do this. I doubt it will hold but a few people's interest, but that is okay with me. Special thanks go to Peter over at http://www.liberalcapitalist.com.
I value my privacy a great deal, so I will guess you will have to get to know me over time to find out much. I am in the financial services, wealth management, investing or whatever you want to call it business. I have children, my oldest is entering college.
I have no great or imposing academic background, my grades varied from high enough to get invited to an honors program at my university to frustrating enough to cause my father great grief. My major was history, with a minor in ethics. My main interest towards the end was in the history of economic ideas before life took a turn and I ended up never going on to graduate school. However, I have a fair knowledge of history, economics, investing and would probably be considered well read. My tastes are eclectic and I pretty much find the entire world interesting.
I have an enduring interest in how people learn about and analyze the world; my posts here will examine this topic in detail over time. I make no claims to be above the very biases and errors I see in others, in fact it is my belief that we are incapable of escaping them, only moderating their control over us.
I am a member of no political party, but I would broadly consider myself a man of the right. I am inclined to free market economics, limited government and a fairly narrow view of the role of the state. A small L libertarian if you will. However, if you are looking for broad based "the left believes..." or "wingers are so...." types of attacks on liberals, conservatives, neo-cons or whatever enemy you want to slam, look elsewhere.
Lance
Who knew economics could be so entertaining?
Cheers.
Don’t encourage me too much Pogue. I could fill the blog with stuff like this and descend so far into geekdom I could never climb out.
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