Equity risk premiums in the U.S. and Japan have compressed to razor-thin levels — stocks now barely offer additional return over bonds to justify the extra risk.
Historically, these episodes don't end well for those chasing equities at elevated valuations. When the premium collapses, it's not stocks that catch up — it's usually stocks that fall back.
This is a valuation warning, not a timing call. But when you're paying equity prices for bond-like returns, the margin of safety has vanished. Reversion happens. It always does.
Historically, these episodes don't end well for those chasing equities at elevated valuations. When the premium collapses, it's not stocks that catch up — it's usually stocks that fall back.
This is a valuation warning, not a timing call. But when you're paying equity prices for bond-like returns, the margin of safety has vanished. Reversion happens. It always does.
