Slow growth economy stock returns

There is a growing body of work suggesting that many developed countries will cease to roar ahead at 3%+ growth rates in the future, that instead we are likely to see a growth rate of about 2% p.a. leading to a ‘steady state’ economy.

If you look at the USA the inflation rate was only 1.9% over the decade from 2000-2010. If you strip out the 2008 recession effect it still only comes out at 2.6%. This could mean that Bernanke’s approach of effectively putting a floor on stock prices could lead to a revision irrespective of intentions.

Take a look at the picture below.

This could mean that in the future the standard P/E expectations could drop and a corresponding dividend yield increase become the natural premium or expectation of stock market investment, strangely; this will be getting back to the original reason people invested in stocks prior to the 20yr secular bull of the 80’s-late 90’s.

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Buying stocks to protect yourself?

Marc Faber makes some salient points to Yahoo! tech-ticker on where he feels the markets and world economy are going and he strongly disagrees with Ken Fisher about the USA having ‘too little debt’. He is strongly anti-cash and feels that commodities and stocks (despite what many believe is simply a bear market rally) are the place to be for the next 2-3 years. An interesting point made on tech-ticker was that the world economy doesn’t need as many people any more, it makes for compelling reading.

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Great Depression? No, not this time.

Steven Leuthold¬† of the ‘Grizzly Short Fund’ talks about the economy, and why we are not headed back to a depression, far from it, in Steven Leuthold’s opinion we are headed towards a decade of strong growth once we get over the current market period. He has not only worked through the crises of the 70’s, 80’s and 90’s but he is also a student of financial crises and his view offers some alternative thoughts on what we can expect in the coming year.

The differences between now and the 30’s (the last defacto depression) are huge, there are social fallbacks that didn’t exist in the 1930’s such as medicare and social welfare, in Ireland we have social welfare and the public medical system.

One point of interest is that like Peter Schiff, Steven Leuthold is very keen on foreign stocks, in particular those in Asia.

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What is ‘Mark to Market’

There is so much controversy over bank assets at the moment and calls for banks to accept whatever writedowns are coming, the way that assets are valued currently are via a system called ‘mark to market’. And what this does is place the value of an asset as whatever it will sell at, which makes sense, but in exceptional times often there is ‘no market’ or ‘artificially reduced market’ and thus assets can be valued far beyond what is considered reasonable true value – to some, not everybody agrees with this assertion. The reason why ‘marking to market’ may not be good is in the second video

Capital destruction in the banking system magnifies the economical issues we are seeing, and the video above argues several very valid points, however, for the time being the only way to determine a price of an asset is to mark it to the market, that is the natural route of capital markets and one agreeable in any regular situation, however, desperate times call for desperate measures and while a suspension of …

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What is 'Mark to Market'

There is so much controversy over bank assets at the moment and calls for banks to accept whatever writedowns are coming, the way that assets are valued currently are via a system called ‘mark to market’. And what this does is place the value of an asset as whatever it will sell at, which makes sense, but in exceptional times often there is ‘no market’ or ‘artificially reduced market’ and thus assets can be valued far beyond what is considered reasonable true value – to some, not everybody agrees with this assertion. The reason why ‘marking to market’ may not be good is in the second video

Capital destruction in the banking system magnifies the economical issues we are seeing, and the video above argues several very valid points, however, for the time being the only way to determine a price of an asset is to mark it to the market, that is the natural route of capital markets and one agreeable in any regular situation, however, desperate times call for desperate measures and while a suspension of …

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