One of the important main market equilibriums (along with economic capacity utilization being neither too high nor too low, and income growth being in line with debt servicing growth) is that stocks must yield above bonds, and bonds must yield above cash by the appropriate risk premiums. People who have good uses for cash will find ways to borrow it and put it to good use. Stocks yield above bonds (outside the riskiest forms) because their cash flows are potentially perpetual, unlike bonds, which typically have a set maturity date and have lower duration risk. Below are forward returns to start 2020. (This is limited to USD assets, but this exercise can be done for all countries with developed capital markets). The risk premiums between various asset classes are done to the right of the graph, such as stocks yield over cash and stocks yield over the 10-year Treasury, and so forth. Cash gives you about 1.5%. Bonds are simply long-duration currency flows, so buying that cash over a period of time through the Treasury markets gives you a little bit more – 1.9% per year over 10 years and 2.4% per year over 30 years. These come with duration risk. For a 30-year Treasury, because the duration is so long (and thus more sensitive to interest rates), only a 10-bp shift in interest rates would move the price to offset the annual yield. Junk yields begin at just over 3.5% and carry both duration and material credit risk. Stocks’ forward returns are just over 5%. Over the long-run, financial assets cannot outperform the growth underlying them. Namely, there are only goods and services; financial assets are simply claims on them. With the US economy growth at 1.7%-1.8% annualized long-term and inflation likely to be just below 2%, nominal growth is likely to come in around 3.5%-4.0% over the next decade-plus. Over that time, financial engineering (e.g., buybacks, mergers, divestitures) may add some additional return. With the effective duration of US stocks currently at 19 and some 150-240bps left in the sovereign yield curve, that could be used to squeeze out another ~30%. With prices already bid up to high levels, a lot has been squeezed out of asset prices, leaving nothing that’s particularly attractive relative to their risks. Europe and Japan are ahead of the US in this process, with compressed risk premiums (i.e., cash and many bond rates at zero or negative), and China is behind the US with higher cash, bond, and equity yields. Higher prospective yields are true for most emerging markets. However, they come with their own set of unique risks and circumstances related to corruption, rule of law, private property rights, education quality, labor productivity, attitudes toward saving and investing, hours worked, regulation and bureaucracy, attitudes toward commercialism and innovation, and financial factors such as debt, debt as a percent of income, debt servicing as a percent of net/disposable income, capacity to create credit, and the quality of their central bank (i.e., authority and know-how) and its efficacy at ensuring price stability or trust in the domestic economy.