In my view, such optimism, if you can call 7.7% long-term returns optimism
it is a mark of the times that if Hussman were to go on the air and say 7.7% is the long-term best possibility, he would be laughed off the stage as a kook. but he's totally right. 7.7% is UNBELIEVABLY optimistic. even Buffett's 6% is WAY TOO optimistic (i'm sure Buffett knows this). real returns will probably be less than 2%, imo.
when one considers the need for an equity risk premium of, say, 300 bp, on top of the 10yr 4.15%, then in order to achieve the 7.15% target return, the current 2% ex ante level would need to fall by more than half.
even this is a terribly optimistic scenario, imo, considering that the industrialized world will only last at best another 30 years or so before oil scarcity ruins the global industrialized economy at least semi-permanently, imo. as i see it, the worst-case scenario is some kind of terrorist disaster (e.g., nuking of a metro area) which plunges the world into chaos at any time. the most optimistic scenario imo is 30 years of muddle-through before utter collapse.
in light of this perspective, it strikes me that the risk premium on US equities is, in the aggregate, rather low. |
