Storm Clouds

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.

  1. There is no relation between return on equity and economic downturns.
  2. 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.
  3. 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.
  4. 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.

2 comments… add one
  • Guarneri Link

    Heh. And what do you suppose the S&P would be if the Fed wasn’t screwing around with bond yields?

  • Ben Wolf Link

    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.

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