Which decades are you looking at? As recently as the decade before last (2000s) we had negative real (and nominal) returns for 10 years.
Sorry, I should have made that more clear. I am talking about the period since the start of the interest rate decline (mid 1980s to today).
“c) The change in the interest rate environment and the inexperience of the vast majority of players with such a change can lead to price movements that go far beyond usual price movements in the business cycle.”
I’m not sure this sentence makes sense?
Let me try to rephrase that: I think we will be seeing a fundamental change in the financial markets due to an end to the 35year long reduction of real interest rates. And most of the actors have only known investing in an environment with more or less constantly decreasing real interest rates. I believe this combination could lead to widespread panic in the markets once the people making investment decision realize that they don’t know anymore how the markets react due to the new environment.
Therefore we should expect forward returns to be low. The problem (for me) is there isn’t much to be done about this. TINA. There is no alternative.
I believe that rationale for investing in equities is quite widespread today. Obviously, there is an alternative (accepting secure negative real returns), but in order to avert guaranteed losses investors take on risk. I am not saying that this is necessarily the wrong strategy, but it poses an interesting question: How will investors with this motivation for holding stocks react in a downturn?
Sorry, I should have made that more clear. I am talking about the period since the start of the interest rate decline (mid 1980s to today).
I think you’re going to have to be more explicit about what time period you’re forecasting your market collapse. (Or whatever it is you’re forecasting, it’s still not clear to me).
Let me try to rephrase that: I think we will be seeing a fundamental change in the financial markets due to an end to the 35year long reduction of real interest rates. And most of the actors have only known investing in an environment with more or less constantly decreasing real interest rates. I believe this combination could lead to widespread panic in the markets once the people making investment decision realize that they don’t know anymore how the markets react due to the new environment.
Please can you quantify this. There have been plenty of market panics since the mid 1980s til now. What are you saying is going to be different now?
I believe that rationale for investing in equities is quite widespread today. Obviously, there is an alternative (accepting secure negative real returns), but in order to avert guaranteed losses investors take on risk. I am not saying that this is necessarily the wrong strategy, but it poses an interesting question: How will investors with this motivation for holding stocks react in a downturn?
Probably the same way they always react. Selling their stocks aggressively. But again, this isn’t different, this is what they’ve always done.
Sorry, I should have made that more clear. I am talking about the period since the start of the interest rate decline (mid 1980s to today).
Let me try to rephrase that: I think we will be seeing a fundamental change in the financial markets due to an end to the 35year long reduction of real interest rates. And most of the actors have only known investing in an environment with more or less constantly decreasing real interest rates. I believe this combination could lead to widespread panic in the markets once the people making investment decision realize that they don’t know anymore how the markets react due to the new environment.
I believe that rationale for investing in equities is quite widespread today. Obviously, there is an alternative (accepting secure negative real returns), but in order to avert guaranteed losses investors take on risk. I am not saying that this is necessarily the wrong strategy, but it poses an interesting question: How will investors with this motivation for holding stocks react in a downturn?
I think you’re going to have to be more explicit about what time period you’re forecasting your market collapse. (Or whatever it is you’re forecasting, it’s still not clear to me).
Please can you quantify this. There have been plenty of market panics since the mid 1980s til now. What are you saying is going to be different now?
Probably the same way they always react. Selling their stocks aggressively. But again, this isn’t different, this is what they’ve always done.