Real returns and market timing

20 Feb

No rest wicked“No rest for the wicked”, as my (Catholic) grandfather used to say – or as the latest evidence from the famous LBS stable of Elroy Dimson, Paul Marsh & Mike Staunton shows, no rest for those trying to earn a “decent” (5% real?) return from their savings. They foresee a world of virtually zero real rates on “safe” bonds and an equity risk premium of 3 to 3.5% on a “long” (20-30 year) view. This is all set out with impressive academic rigour in the excellent (and free, as far as I can see) Credit Suisse Global Investment Returns Yearbook for 2013 (

They also pretty effectively dish “market timing” strategies in favour of buy and hold – for those of you with access to the FT, there is an excellent video of an interview with Elroy by John Authers which is also a must see.

The only saving grace I can see in this is that we should, on this basis, expect a boom in capital investment, especially in long-lived capital investment projects, which should now require lower real returns. So now should be the time for new water ring mains, Crossrail Mark 2, third London Airport et al. The trouble is, I cannot see our crotchety Coalition government and rather antique planning laws delivering on this in the foreseeable future.

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