Re: poly: Re: Why interest rates may stay low

From: Carl Feynman <>
Date: Thu Mar 26 1998 - 12:32:15 PST

At 09:25 PM 3/24/98 -0800, GCU Name of the Week wrote:
>That's aggregate growth of the economy; should that be synonymous with
rate of
>return? I've been confused at times -- the historical return on stocks is
>said to be 10%, but the measured economy generally doesn't grow that fast.
>But if aggregate growth equal rate of return, that implies there's no missing
>investment in the future, because the future isn't that extraordinary.

The historical rate of return on stocks in the United States is not
synonomous with the total rate of return to all investment. An investor
looking forward from 1898 rather than back from 1998 would see a growth
rate much less than 10% over the last hundred years. Because American
stocks turned out to have a higher long-term growth rate than these other
investments, they now loom large in the picture of the world's aggregate
wealth, but they weren't nearly that big back then. If you were looking for
good investments in 1898, American stocks would only be a small part of
your portfolio. You would probably also invest in French and German stocks
(wiped out by WWn for n=1, 2), Hungarian real estate (nationalized),
Chicago streetcar lines (nationalized, went bust, or both), Chinese
government bonds (defaulted), Argentine bonds (hyperinflated to
worthlessness), beautiful new buildings in the South Bronx (unexpectedly
turned into slum) and Vietnamese rubber plantations (canceled by change of
government). All these dud investments would even out your good ones in
American and British stocks, California real estate, Brazilian rubber
plantations, etc.

Received on Thu Mar 26 20:37:12 1998

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