Bank of America today succinctly waded into what I think is the most-important macroeconomic question right now: Was the 2000-2020 period of low inflation a sign of central banks taming inflation or a historical one-off that won't be repeated in the future.
Economist Michael Woodward writes:
He understates the final point as it would represent a potentially-catastrophic change. In just one example: in the 1990s, US 30-year yields averaged above 7% and that was a decade when CPI averaged just 3% and US government debt was under control.
A return to a 5% 'normal' would imply at least that. Tack on a 200 bps premium for mortgages and you have people borrowing at 9%.
In terms of equities, a 7% risk-free rate would severely impair the case for the S&P 500, which trades at a 3.5% earnings yield and a 1.3% dividend yield. That also doesn't factor in the drag to corporate profitability from higher borrowing costs.
What scares me is that globalization is objectively deflationary, demographics have undoubtedly been a sweet spot and technology made leaps in that period. We won't repeat that and may even be unwinding it via the trade war.
Perhaps AI and automation can spark a repeat -- or even an extension of that trend -- but that raises fresh set of questions.
This article was written by Adam Button at www.forexlive.com.Hence then, the article about bank of america wades into the most important investing question of the decade was published today ( ) and is available on forex live ( Middle East ) The editorial team at PressBee has edited and verified it, and it may have been modified, fully republished, or quoted. You can read and follow the updates of this news or article from its original source.
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