In my last ERP update, I argued that stock market investors were dancing to the Fed’s tune and wondering whether the music would stop. The big difference between now and 1981 is that in 1981 bonds were priced to win (with falling rates), while now bonds are priced to lose (with rising rates). On (2), you may be right about historical correlations not applying but you cannot be selective about the mean reversions that you think will apply. There is a big difference between a negative real interest rate at a 10% nominal rate and one at at a 2% nominal rate. Past performance of Time Warner stock is not necessarily indicative of future performance.
It’s difficult for me to imagine a scenario where both reversions happen at the same rate, unless we get a whole lot of strong economic news in a short time (but if that happens, the expected cash flows from stocks will also likely rise, so you could get rising prices despite mean-reverting interest rates). It would be better to look at historical realised returns when breaking down the components of a return into the ERP and risk free rate. Specifically, what benefit are your historical expected returns if they do not predict historical realised returns well.
Good post with Best and profitable tips, By this tips traders and investors get more profit in stock market. Statement 1 does not demonstrate the historical correlation has weakened”, but it rather entirely dismisses the notion of any positive correlation at all. ERP India is transforming into world IT hub & ERP is playing a major role in growth of small and medium size industries in India apart from contributing largely into the big business enterprises.
Stock market history seems to suggest that worrying about the year-to-year variability (let alone worrying about monthly, weekly, or day-to-day variability) is a fool’s errand. You could conclude from looking at the above graphs that investing in the stock market can be a very good thing indeed; I think that’s true. You might also conclude that it’s virtually impossible to lose money in the stock market over the long term. If you look in the sidebar list of most popular posts all-time, you will see both a 100-year stock market chart and a 100-year interest rate chart. Volatility is a measure of risk / uncertainty of the underlying stock price of an option.