From GMP’s recent White Paper: In order to make sense of today’s pricing, you need to believe in six impossible things:

  1. Secular stagnation is permanent and rates will stay low forever. As we have argued at length elsewhere, secular stagnation is a policy choice and we could exit it reasonably quickly by implementing appropriate policies.
  2. The discount rate for equities depends on cash rates. is is nothing more than a belief. It has no foundation in data and not a scrap of evidence exists that supports this hypothesis.
  3. Growth rates and discount rates are independent. is is a very questionable assumption. If, as I believe, it is false, then it makes the “Hell” outcome Ben has discussed in previous Quarterly Letters less likely, unless the rst two beliefs hold completely.
  4. Corporates carry out buybacks ad nauseum, raising EPS growth despite low economic growth. is would imply rising leverage, which is already close to all-time highs. Remember Minsky: Stability begets instability.
  5. Corporate cash piles make the world a safer place. Cash levels aren’t high by historic standards, and valuations are extreme even when cash is fully accounted for.
  6. The “Hell” scenario is the most probable outcome. is requires “this time is di erent” to be true and, unlike Jeremy Grantham, I am not yet ready to assign this exceptionally useful rule of thumb to the waste bin of history. Put another way, Hell requires that stock prices have reached a “permanently high plateau,” and I’m not about to embrace that statement.

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