It is such a tough investing environment that, although we have strategy templates around here somewhere, I don't even remember what the best producing asset classes should be.
From The Washington Post's Wonkblog:
Here’s why Larry Summers is wrong about secular stagnation
David Beckworth is an assistant professor of economics at Western Kentucky University and the author of the economics blog Macro and Other Market Musings.
It's been five years since the Great Recession officially ended, but the U.S. economy is still in a slump.
How bad is it? Well, the CBO estimates that GDP is 5 percent below potential, and, even worse, 10 percent below its pre-crisis trend. We've only recently made up for the 8 million jobs we lost during the crisis, but we're still far short of how many we need to keep up with all the population growth the past five years. In short, the economy has stabilized, but it hasn't recovered nearly enough.
The question, of course, is why growth has been so sluggish. Larry Summers, for one, thinks that it's part of a longer-term trend towards what he calls "secular stagnation." The idea is that, absent a bubble, the economy can't generate enough spending anymore to get to full employment. That's supposedly because the slowdowns in productivity and labor force growth have permanently lowered the "natural interest rate" into negative territory. But since interest rates can't go below zero and the Fed is only targeting 2 percent inflation, real rates can't go low enough to keep the economy out of a protracted slump.
Is secular stagnation just an illusion?
But is this right? On the one hand, secular stagnation makes sense in theory, and even seems to in practice. Technological innovation—and with it, productivity—really have slowed down the past few decades, as Tyler Cowen, Robert Gordon, and John Fernald all point out. So has labor force growth now that the Boomers are starting to enter their golden years. And most telling, according to Summers, is the way that real interest rates have steadily fallen since the 1980s. But, on the other hand, there are real problems with the way we calculate real rates—problems that make it look like real rates have fallen more than they really have. And furthermore, today's techno and demographic pessimism both look overdone.
In other words, there might not be any reason to think the economy is slumping into secular stagnation.
Let's talk about everybody's favorite subject: measuring real interest rates. Now, when people say that inflation-adjusted rates have been falling the past few decades, most of them are just subtracting expected inflation from the nominal interest rate. Seems simple enough. But the problem is the resulting real interest rate is not the same as the natural interest rate at the heart of the secular stagnation story. That's because it still includes a risk premium. And that's particularly problematic, because the risk premium was highly elevated in the early 1980s—just when the secular stagnation story is supposed to have begun, as you can see below.
The real story is about uncertainty....MOREHT: The Big Picture
Earlier:
New York Fed: "Risk Aversion and the Natural Interest Rate"
The Data Problem with the Natural Interest Rate Debate and How to Fix It
