The Purgatory of Low Returns

GMO

James Montier

Article

1 Pages

GMO examines why investors face an unusually difficult environment where nearly every major asset class appears expensive. It argues quantitative easing encouraged widespread risk taking, leaving few attractive opportunities while warning that reaching for yield has historically produced disappointing outcomes and painful reversals.

Key Takeaways

Expensive Asset Classes: GMO's 7 year forecasts showed far fewer attractive opportunities in 2013 than in 2007, reflecting broad valuation expansion across global markets.
Yield Chasing Risks: May 22 to June 24, 2013 saw emerging markets fall 15.3% while the S&P 500 declined 5.6%, illustrating how reaching for yield can unravel quickly.
Negative Real Rates: : GMO assumes real 10 year Treasury yields normalize from roughly -2.0% to 1.6% over 7 years, making long duration bonds appear unattractive.
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