Low prospective returns from shares

Low, falling and negative interest rates point to

 very weak expected returns from shares

over the next few years. 

Negative long term interest rates mean the holders of those instruments:

Are prepared to pay the issuers (the Governments) to hold their money till maturity ( that is, a reverse of what normally happens ) – this points to a view that security of investment has become a prominent feature with investors; 

Acknowledge now that they will incur a loss on maturity  – this points to a view that security of investment has become a prominent feature with investors.

Falling long term interest rates mean:

Economic growth and inflation are expected to be very subdued;

The comparative returns available from shares (a competing long term investment) must also be seen to be weak over the longer term;

Returns available from superannuation funds, that invest so heavily in long term interest-bearing securities, must be expected to be weak going forward.

Falling Interest Rates and Share Prices : 2000 -2002 and 2007-2008

During both the above periods of seriously falling prices, interest rates actually declined very substantially.

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So, declining interest rates can attempt to support share prices only to a particular extent.

I believe that we are going into a period similar to

2000 to 2002 for share prices

Obviously, one should refrain from buying shares at these elevated prices. A sustained savings program over the next 18 to 24 months appears appropriate.

This is how expensive markets are, as expressed by another noted analyst, John Hussman [www.hussmanfunds.com]

Hussman model

So, according to the above analysis (which can be seen to have a superb accuracy  record) one may expect a ‘portfolio’  return of less than 2% per annum over the next 12 years, given current very expensive shares, property and bond prices … not worth the risk .. save your money instead.

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2 thoughts on “Low prospective returns from shares

  1. Moses Tradeau

    Really great post. A very sensible advance warning to beware of these markets.

    Your views are invaluable where most seem comfortable chasing shares at these extremely expensive levels.

    Liked by 1 person

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