Happy July 4 to all Americans. Eternity is here. Eternity in low interest rates for longer. Eternity in excess return from stock markets, eternity in no growth, eternity in low productivity, eternity in chasing yields. The chasing yield game now joined by central banks like the Swiss National Bank and recently also big investors like Pimco, who at the top of the market no longer sees the stock market in a bubble!
The main common denominator is low interest rates – so where the market and Pimco mathematically correctly uses the low interest rates for longer as an input which produces a superior return, a few of us who were around in 1987,1992, 1998, 2000, and 2007/08 know that market tends to mean-revert. This concept that if we have a superior return over a longer period, it will need to be met by a negative performance to average ‘out’ is dead now.