That s because the market is finally recognizing that stocks are not really riskier than bonds over the long term. It all sounds reminiscent of Yale professor Irving Fisher saying, in the autumn of 1929, that stocks were reaching a permanently high plateau. Fisher s exposition was extensive and sophisticated, and this was only one of sixteen points he made. I find it hard to justify what I take to be the market expectation of inflation for the next thirty years. That s extremely optimistic.
Inflation is always in the wings because it s the most tempting way for governments to raise money.
I do not believe another Great Depression is in our foreseeable future. But greater inflation surely is. And even if all that is wrong, a phenomenon the risk premium that has been present for over a century is not going to disappear so fast. It makes a great deal of sense for individuals to buy an index fund, says Friedman. It gives them diversification.