Estimating Future Stock Returns

seacaitch wrote: »

I think we're seeing:
(i) something of a monetary policy regime change occurring (where somewhat higher inflation will be tolerated before CBs tighten / a very asymmetric approach); and
(ii) something of "baton pass" from monetary to fiscal policy, with substantial fiscal deficits being tolerated;
...and that this will/is occurring globally.

These are some of the reasons why I suspect the probabilities favour (not guarantee!) more, amd perhaps quite significant, upside over the medium term, ie. another leg up for the secular bull market. NB no guarantees!

RE point 2) just to put my two cents in here, I am not sure that we are moving to a situation where fiscal policy is the dominant force in what is determining economic performance. I think as you point out the idea that a minimal deficit as ideal is being rejected, it has been the IMF, Eurozone go to plan of action, and appears to be not delivering the same results.

Why? I believe if you look at the rapid expansion of broad money since 1980 and the move to a FIAT based currency, the physical cash transactions (what you and I save/consume) makes up around 4% of the broad money (M4 IIRC - could be wrong ) so the Keynesian ideas and policies derived from manipulation of aggregate demand/supply are having a reduced impact on the economy. So surely it would make sense to move away from the reduced budget deficits if that policy is reducing in effectiveness over time...

In relation to monetary policy, I worry that the tail is now wagging the dog, look at the fed/UKCB and the short term loans that are needed to ensure our commercial banks are meeting legislation that relates to liquidity and tier 1 capital. See Qe to take the poor financial assets of the balance sheets for said banks. I fear that we are stuck in a rock and a hard place, unwind this central bank stimulus and we may have banks that look more illiquid than present - causing people to panic - self fulfilling prophecy. If we don't unwind, we are exposed to the next crisis, we could be looking at radical measures to be taken, ie, currency devaluation to keep pace with those that aren't touched by the contagion.

an extension of this is that we are seeing super low interest rates to prevent a large scale debt servicing problem - is your car financed, your house, your phone you can even finance your household items? Once the rates rise and so to do defaults, the financial transactions that have these loans bundles as collateral start to be sold like hot potatoes - we end up in "death spiral"

tl;dr - I don't believe we are shifting to fiscal policy, it is just that the fiscal effects on a debt-fuelled consumption economy are now becoming increasingly ineffective. And that on monetary policy, we are so unwound that the tail is now wagging the dog, its in everyone's interest that the commercial banks meet liquidity legislation - forcing central banks hands.

I am happy to be corrected! Sorry for the essay haha