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Deficits and market returns
Old 04-06-2011, 08:24 AM   #1
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Deficits and market returns

I saw an interesting blurb on the impact of large deficits on returns on the DFA blog. One of the VPs did a study on the impact on the market of high interest rates and slow growth (predicted to result from big deficits). Excerpts:

"You would think high interest rates and slow growth would be the perfect storm for investors. You would be wrong. Ms. Lea looked at the average annual returns in high and low growth countries in developed markets from 1971-2008. The low-growth countries had an average annual return of 13.52%, compared to 12.90% for the high-growth countries. The difference was more stark in the returns of countries in emerging markets. For the period from 2001-2008, the average annual return of low-growth countries was 24.62%, compared to 19.77% for high-growth countries. "

"Ms. Lea concluded that deficits do not predict stock or bond returns and that low future economic growth does not mean low future stock returns, which is precisely the opposite of what most investors believe."

So, referring back to the Trinity study thread - more hope that I will be able to fly first class in the 2020s. I like to keep my likely future bias filter on the optimistic side and my SWR (for now) on the pessimistic side.

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Old 04-06-2011, 10:08 AM   #2
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Not sure how much the history from other countries, tells us about what will happen in the U.S.
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