With negative real rates in a large chunk of the world, it's either starve or take on more risk that you should for a lot of savers.
Possibly the best one can hope for is the not fall and get crushed in the rush for the exits when it eventually occurs??
problem with the macro view is when the fundamentals take a back seat to central bank manipulation, we're best off not betting against the FED / BOJ / ECB / BOE.
"Volatility in many financial prices is unusually low."
- Glen Stevens (RBA) in today's Statement.
VIX vs three month volatility in SP500:
With Central Banks either committed to normalizing (BoE, Fed) or at max stimulus (Japan), or heading into more crap (ECB)...does it seem reasonable for risk to be saying:
"Don't worry, about a thing..because every little thing is gonna be alright"
- Bob Marley
And yet equity markets march upward virtually unbroken as yields continue to fall. This is a violation of historical relationships. It is a symptom of risk bearing and excess liquidity. The usual relationship broke down at the end of the recession.
"One of these things is not like the other."
- Sesame Street
Let's decompose the march of the S&P into multiple expansion and earnings. EPS is actually lower than where it was in 2007. Yet the multiple attached is about 30% higher. The EPS growth heading into 2007 was also much higher than can reasonably be expected from this point. In other words, the PE premium in 2007 was already rich.
With the decline in long bond yields, it is possible to conclude that the valuation now is sort of similar to the one at the peak of 2007. But, it's a stretch because EPS growth cannot be sustainably produced by financial engineering and the GDP outlook is modest at 3% per annum (real) and expected to decline. Credit growth is not like the post tech-wreck/Iraq 2 period and bargaining power of labor should increase as unemployment lowers, although much spare capacity exists. EPS growth is typically high after an acute crisis. We are not in that phase any more. Basically, you'd want to be doing well and for bonds to stay at really low rates just to justify current super rich premiums at current bond yields.
...and long bond yields are incredibly tight in real terms.
"How low can you go"
- Ludacris
The other thing that CBs now know is that inflation targeting needs to consider asset price inflation as well. As per QldFrog's link, the BoE is taking steps to cool the housing market. Further, the Fed has moved to a checklist approach as opposed to strict targeting. Systemic risk is now more of an issue given the lessons of the GFC.
"There was a flaw in my ideology."
- Alan Greenspan