Andy Harless

While stocks are pricing in 4% GDP growth for 2010, corporate bonds and Treasury markets are betting 2% growth is more likely. David Rosenberg sides with the latter, and cautions that even if stock markets are right, it's already priced in.

I doubt stocks are really pricing in 4% growth. What they're pricing in, I would suggest, is a lack of competing investments. 2% growth means easy money for some time to come, which means continued low yields on high-quality bonds. Add to that the perceived risk of inflation (which would be good for stocks at least until people realize it's happening), and there is a strong case for buying stocks even if their returns are expected to be meager by historical standards.

Put another way, in a macroeconomic environment where desired savings exceeds desired investment at all positive real interest rates, the equilibrium real interest rate is zero (or less than zero), which makes the value of even a small expected real return infinite. It's more complicated, of course, when you consider risk and duration issues. ("Time and chance happeneth to them all.") But it's fair to say that we're in an environment where historical yardsticks for expected equity returns need at least to be reinterpreted.