It may not reflect positively on CEOs or the long-term sustainability of their companies, but many are making capital allocation decisions based on the demographics of their investor base, which explains their emphasis on dividends and buybacks. “Since the bull market began in the spring of 2009, the S&P 500 has advanced 285%, but total return has surged 363%, with dividends accounting for 20% of the total,” Rosenberg says.
This cycle has been characterized by low growth, low interest rates and low inflation. Maybe it just could stay lower for longer.
Or maybe not. Call it whatever you want but no economic condition is permanent. What if Secular Stagnation, the New Normal or the New Mediocre is about to end and we are about to enter a new phase.
In a recent interview, Mohamed El-Erian declared that within two years the lower-for-longer world would come to an end and the global economy would either transition into a period high, inclusive growth or a "recession with renewed instability."
El-Erian noted that Brexit had driven Europe to focus on the problems that has caused it to experience a sclerotic economy for nearly 40 years. Under new leadership, France of all places is addressing the issues that have calcified its labor market—namely, that when the government makes it painful to fire workers, employers become afraid to hire anyone.
In America, tax reform should should be able to sustain and possibly accelerate the expansion for 2018. But a question investors rarely ask but need to keep in mind is: What could go right?
The economy is running low on workers but robotics and artificial intelligence are picking up the slack. The media is obsessed with how new technologies like driverless cars could displace tens of millions of workers. But what if these new innovations also create millions of new jobs. It's happened again and again in the past. Will this time really be that different?