Jag hade nog inte agerat på någon specifik persons synsätt men i artikeln nämner han detta -
What will cause velocity to take off?
When people decide their savings can’t be sustained and do something with it. This will happen when the government starts to cap bond yields at a level permanently below inflation.
Won’t this just provoke another leg up in real assets, like equities?
Yes. That’s why I’m bullish on equities and real estate. As the experience during the three decades after World War II has shown, in the early stages of financial repression, equities and real estate are beneficiaries.
So let’s take the playbook after the war: For about twenty years, we saw high nominal growth, followed by a long period of stagflation. What are we looking at today?
For the average guy in the street, financial repression can look quite good. Let’s say your wage is going up at 5%, and your mortgage rate is 3%. This is not a bad world to be in at all, arguably for the majority of the population even if their wages only grow in line with inflation. The person who pays the price for this is the saver.
It was a fantastic time for equities, though.
Absolutely, if you had been in equities during that time, you did very well. That’s why I’m bullish for equities today. However, there is one crucial difference: At the end of the war, the yield on ten year Treasuries was 2,5%, and the dividend yield for equities was 10%. Equities started the period of financial repression at dirt cheap valuations. From 1945 to 1966, you had this catch-up where the cyclically-adjusted P/E went from 9x to 25x. Today, equities enter this period at an already very rich valuation.
Do you expect a repeat of this pattern, first a boom, and then stagflation?
Yes, but I wouldn’t expect the boom phase to last that long. So even though I’m bullish for equities at the moment, the difference this time is they start at an overvaluation, rather than at an undervaluation. A repeat of the long boom from 1945 to 1966 for equities is unlikely.
How long can the good times last?
The first stage can go on for three or four years. That’s short compared to after World War II, but it’s long for many people. The time to sell equities is when governments formally force savings institutions to buy more bonds. Because in order to buy, they will have to sell equities.