A new paper thoroughly examines the empirical performance of leading stock-return predictors. Most predictive variables perform poorly. One variable stands out as a consistent predictor, though: End-of-the-year consumption growth, a variable Stig V. Møller and I introduced in 2015. It feels a little like winning the “world cup in return prediction”.
Continue readingFrothy stock and housing markets: How worried should we be?
Historically, either stock markets or real estate markets have been frothy during periods of market exuberance. Today, according to usual metrics, both stock markets and real estate markets trade at historically elevated levels. I admit I am getting nervous. True, there are comforting factors. Most importantly, credit growth is low. Second, it is always difficult to predict when markets turn sour. I discuss arguments for and against looming real estate and stock market turbulence. I conclude that monetary policy fuels bubble-like behavior in asset prices, and that Quantitative Easing (QE) should stop. But what will happen then?
Continue readingIs 1970s-like inflation coming back?
Inflation is high, budget deficits are enormous, monetary policy is expansionary, and energy prices are rising. It looks like the 1970s, and some fear high and persistent inflation is coming back. Is it?
Continue readingIt’s official: This was the shortest recession on record
In November, I wrote an analysis arguing that this recession ended in April last year already. Last week, the NBER Recession Dating Committee officially determined the end of the recession. And what did they conclude: The recession ended in April 2020. This makes it the shortest recession on record.
Continue readingSummer reading: Probabilities of tail-events
What is the likelihood that we will see high inflation? What is the likelihood that we will see deflation? What is the likelihood that the stock market will crash? And what is the likelihood that it will continue rising? How likely is it that real estate prices will fall, and how likely is it that they will rise? And what about the exchange rate? Find the answers to these questions in this summer story.
Continue readingFrom Main St. to Wall St.: Expected returns
In this final post dealing with my book From Main Street to Wall Street, I describe how one can use insights gained from its initial parts to make predictions about the future. Along the way, I discuss how likely it is that we are heading for a recession (the likelihood is low) and why we should expect low returns going forward. I also give you my best guess of the expected real return from US stocks. This is low, too.
Continue readingFrom Main St. to Wall St.: The business cycle
What is the relation between economic activity and the stock market over the business cycle? This blog post presents some of the conclusions from my book From Main Street to Wall Street. One conclusion is that the business cycle has a strong impact on the stock market, another that post-1945 business-cycle dynamics are very different from pre-1945 business-cycle dynamics.
Continue readingExpected returns, spring 2021 forecasts
Today, May 4, 2021, the Council for Return Expectations publishes its updated forecasts. We still expect very low – negative – returns on safe assets, though not as negative as we expected six months ago. We also expect marginally lower returns on risky assets. Compared to six months ago, we thus expect a lower equity risk premium.
Continue readingFrom Main St. to Wall St.: The long run
What is the long-run relation between economic activity and the stock market? From Main Street to Wall Street analyzes, inter alia, this question. Here, I present some of the conclusions.
Continue readingFrom Main Street to Wall Street
My book – From Main Street to Wall Street (link) – has been published. This blog post explains why I wrote the book and its contents. The next three posts (that will be sent out in due course) will present some of the analyses and conclusions from the book.
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