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From my point of view, as someone who is invested into an all-world blend like VT or VFFVX, it has been 2.5 years somewhat flat, and we still seem to be at a peak.
https://www.multpl.com/shiller-pe . I cannot really gauge risk in a systematic like you'd like to. I'm generally pessimistic, because GDP growth is low, central banks have rates in a choke hold promoting misuse of capital. (In theory many existing companies shouldn't exist. Many are unprofitable, but they get by on cheap loans. Thereby taking away resources/people from potential/future profitable businesses). The ECB couldn't even raise rates in a supposedly economic growth period.
The Fed did in 2019 while reducing the balance sheet, and it ended in a correction and lower rates and a restart of QE.
Low rates also put a lot of pressure on banks and local banks.
Economies and the world are increasingly financialized. The financial market adds little value to the real world aside from "productive" (think GDP-increasing / not consuming) lending.
Consumer loans are awful. Buying your first house/land on a loan is good, though.
Interest payments reduce economic output in the present.
Individuals spend income of the future now, and depress future spending.
E.g. interest payment of the U.S. are ~300bil/year right now ~10% of the budget.
And for many economies and governments there is no end in sight.
Ultimately this can only be solved by reducing spending (which doesn't seem likely for many governments), inflating it away, keeping rates at 0% forever effectively spending printed money, i.e. inflating it away.
Also central banks can buy assets in the open market at face value to lower yields and swallow the coming defaults (which again means inflating it away, and also sending the clear signal that everyone will be bailout, perhaps again in the future).
One aspect of this dynamic is currency demand through e.g. being an important world currency or having export surplus. Some countries can print money better than others. When I say "inflate" I don't only mean according to CPI. If all the money goes into assets like equities or real estate, it is inflating that. The stock market feels like a ponzi scheme more than anything. I'm simplyfing here.
Some countries are better than others.
Perhaps a valid investment strategy would be to invest into indexes of good countries. That felt a lot like rambling, but I hope you get some value from it.
I'm interested in your thoughts. |