Reading "F-armageddon" 's "Power Of Zero"

Grave diggers at Zero Hedge have the full report that is always worth reading.

I list some ideas of Don Coxe here that are relevant, IMHO, in the context of bullish action in the risk asset markets right now, my emphasis added:

The US and British economies are performing at roughly the level they were during the late stages of the 1981-82 recession—when corporations’ and consumers borrowing costs’ were infinitely higher. That inflation could be in the zero range would also astonish them, even though the biggest factor in their first election victories was the runaway inflation of the Carter and Callaghan era—when “malaise” was the Presidential euphemism for the spreading despair.

So why shouldn’t the economic recovery be at least as strong as Reagan’s—if not even more robust?

It’s because those Zero rates tell us that the financial system’s problems that triggered the economic collapse aren’t going away quickly—and could even be getting worse.

Why this is relevant in the context of bullish market action? Well, if you look at camp of "Generic Bulls" of equities, e.g., step in warm shoes of Birinyi, this points to cardinal difference. Not only that, of course, as S&P500 trades now at almost 19x Shiller PE, and it took well into 1985 to get Shiller PE above 10.02x ... Well, we touched the issue of stable and low inflation recently?

This is quite striking in the context of recent history:

Last week, the Bank of America summed up the disappointments of our era for institutional investors. It noted that there were 42 trading days left this year, and the S&P would have to rise 42% to deliver a Zero rate of return for the past decade.

By some calculations, on a compounded basis, long Treasurys have outperformed the S&P since the beginning of the Reagan bull market. The problem with those data is that they assume sustained reinvestment of interest at the long end of the curve, but most bond managers would have been below benchmark duration for extended periods, which meant their cash income would have been reduced.

Apart from that nitpick, what that number shows is that capitalism has failed its most basic test—delivering higher returns to investors than was paid on risk-free government bonds. And this was the best of all times in the best of all capitalist worlds: classic economic liberalism was becoming the fashion everywhere outside North Korea, most of the Arab world, and Cuba. There were more playing fields for multinationals than ever, corporate tax rates were generally declining, there were no major wars, the supply of highlye ducated engineers, MBAs and CFAs was at record levels, and business was more respected than it had been since the onset of the Depression.

Hmmm ...

Well, Don Coxe does not end up with only this. There is much more ...