The idea that low interest rates and QE support asset prices sounds intuitively correct (i.e. “money printing”), but is not widely supported by observation or the operational realities of monetary policy.
Investors cheering the ‘lower for longer’ narrative need to be wary of the long-term implication of central bank actions.
· Over the long term, low interest rates may lead to lower return on capital requirements – which will ultimately lead to lower share price returns.
· A heavy domestic asset allocation strategy is risky.
· A low-cost index fund may not be the best option for everyone, especially in a low-return world.
· In the end, trends in profits matter – and a key component to profits includes a positive demographic story.
The message is clear: be careful being overly bullish in a ‘lower for longer’ world. History is not on your side
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