Independent Investment Advice Inspired By Schiller
Yale Professor Robert Schiller who is well known for independent investment advice, said yesterday that "real" corporate earnings increased over 100 years at 1.5% annually. He forecasts the SP in ten years will be at about 1300 in real terms and with inflation it will be about 1400 in nominal terms. It is now about 1250. So in real terms he is forecasting over ten years the only reward for owning the SP will be the 2% annual dividend.
My opinion is that since 30 year U.S. Treasuries pay 4.3%, free of state income tax, which is like getting 4.7%, then Treasuries would beat equities, assuming inflation remains low. Treasuries have in the past certainly outperformed equities on a risk-adjusted basis since Treasuries have a standard deviation of about 17 versus 20 for the SP.
Schiller used the earnings from 1890 to 1990 because the last 20 years was a bubble that produced excessive earnings. My opinion is that we are parallelling the 20 year Japanese crash from 1990-2010 and we have several more years of bearish performance before things get better.