One of the most important things I have learned in my career is not to listen to macroeconomists making forecasts of financial assets. They have no clue and their forecasts generally are so wide off the mark as to be useless. However, there are exceptions to the rule and one such exception is the link between consumption and future real interest rates. If you look at the ratio of private consumption to private wealth, you can see that it tends to decline slowly over time but has long-lasting secular swings. Periods of high consumption to wealth are followed by extended, often decades-long periods of low consumption to wealth. This makes intuitive sense because if consumption is high relative to wealth, then subsequently, consumption must slow down as households deleverage their balance sheets or the returns on wealth must increase to catch up with previous consumption. Higher returns on wealth are possible if either real rates are high (and thus returns on bonds are high) or risk premia on equities and other risky assets are high.
A macro forecast of stock and bond returns
A macro forecast of stock and bond returns
A macro forecast of stock and bond returns
One of the most important things I have learned in my career is not to listen to macroeconomists making forecasts of financial assets. They have no clue and their forecasts generally are so wide off the mark as to be useless. However, there are exceptions to the rule and one such exception is the link between consumption and future real interest rates. If you look at the ratio of private consumption to private wealth, you can see that it tends to decline slowly over time but has long-lasting secular swings. Periods of high consumption to wealth are followed by extended, often decades-long periods of low consumption to wealth. This makes intuitive sense because if consumption is high relative to wealth, then subsequently, consumption must slow down as households deleverage their balance sheets or the returns on wealth must increase to catch up with previous consumption. Higher returns on wealth are possible if either real rates are high (and thus returns on bonds are high) or risk premia on equities and other risky assets are high.