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“What executive isn’t challenged by the daily barrage of conflicting economic reports attempting to clarify the question of the hour: will the global recovery build or lapse into another recession? Indeed, executives around the world are evenly split on the topic. And while the savviest executives and investors know better than to get caught up in the short-term fluctuations of the economy, many others, looking for evidence of longer-term trends, still fixate on movements in the equity markets.
They shouldn’t. The fact is that those markets, well analyzed as they are, don’t predict downturns effectively. Credit markets are a better place to look for signs of impending trouble, in no small part because they have been at the core of most financial crises and recessions for hundreds of years. Parsing the credit markets isn’t easy—there’s no single number remotely like a share price to monitor, and there are many moving parts. But for executives willing to take the time to understand the relationship between the financial and real economies, the credit markets can provide clearer indicators that a recession is on the horizon.
Subscribers to the theory that markets process all information efficiently would argue that equity investors should be in very good shape to recognize early indications of a looming downturn. If that were indeed the case, current market valuations might inspire confidence. Our model of the equity markets suggests that their current levels in Europe and the United States are reasonably consistent with the intrinsic value of equities, given long-term profit trends and current rates of interest and inflation. And since equity markets do a reasonably good job of tracking long-term economic fundamentals,1 investors can expect longer-term returns—dividends and share price appreciation—that are in line with historical real returns, in the range of 6 to 7 percent.”
JJ Editor's Daily Picks
"After five years of war with the Islamic State, the biggest problem for the winners is coping with the losers. The aftermath has produced one of the world’s most perplexing postwar challenges..."
"What do we mean when we say that the “soul of the city” is under threat? Often, it’s really about politics, nostalgia, and the fear of community change."
"...the pendulum of history never stops moving. Indeed, one of the few constants of history is unceasing change. While we seem to be heading in one direction, we must remember that there will surely be pauses, turns, and reversals."
""Homecoming: A Film by Beyoncé," premiered early Wednesday and it was the fulfillment of all the ancestors' hopes and dreams. Beyoncé also dropped "Homecoming: The Live Album.""
"Seven in 10 adults ages 18 to 34 received financial support from their parents in the last year, including more than half of those in their early 30s. Almost three in five millennials said they couldn’t afford their lifestyles without the support."
"Social media influencers have helped turn public lands into tourist-infested swamps. And one cantankerous man is fighting back."
"One particular myth that attached itself to Ledger was that his death was somehow a result of immersing himself in the character of the Joker."
"In 2018, for the second year in a row, American publishers released fewer translated titles: 609 books were published, down from 650 in 2017 and the industry high in 2016 of 666."
"Egg freezing had become so routine among my single peers that when I hit 35, I never thought twice. Here’s what I wish I had known."
"When it comes to Passover cuisine, most home cooks know to avoid wheat, oats, rye, and other forbidden ingredients. But what consumers might not realize is just how much cotton they eat during the holiday."
"A masked figure looms over your recumbent body, wielding power tools and sharp metal instruments, doing things to your mouth you cannot see."
"Passover is a holiday that commemorates the Jewish people escaping slavery in Egypt. It is often referred to as the “festival of freedom.” My Passover in prison was at a place called the Wallkill Correctional Facility..."