The graph of return on equity from 1952 to 2017 above is from Deutsche Bank courtesy of Barry Ritholz. Let’s take a little poll.
- There is no relation between return on equity and economic downturns.
- Return on equity always declines in an economic downturn, reaching a bottom near the end of the downturn. We are very likely to be entering an economic downturn now and returns will decline a little more before recovering.
- Not every decline in returns on equity is accompanied by a recession. Returns on equity could recover a little before declining even more during the next recession.
- This time is different.
IMO B-D may all be true. What is clear is that there is too much money chasing too little return.
Heh. And what do you suppose the S&P would be if the Fed wasn’t screwing around with bond yields?
I don’t see an imminent recession. However, given the 8% y-o-y growth in that portion of the budget, military spending appears to be the only thing keeping us out of it.