The Case-Shiller Index currently has home prices rising at 2-3x inflation: https://www.housingwire.com/articles/46307-case-shiller-home... That would certainly seem to be unsustainable.
Like a corporation that sells annuities? It seems like a minor detail of financial engineering, just like figuring out how to profit from a perpetual motion machine.
It still seems obvious to me that any asset with perpetual outperformance must revert to the mean before or after it eats the world and people just have gotten very accustomed to denying this fact because the boom in the US stock market has outlived any human who doubted it.
Look at Moore's law - it became an article of faith, but things that can't go on forever the same way don't.
> Like a corporation that sells annuities?
They exist, of course, but I think you'll find "simply" doesn't begin to describe how this works in reality, especially with the confounding factor of that corporation adding another layer of risk/opacity.
> any asset with perpetual outperformance
That's different from your initial premise, which was returns exceeding inflation. Outperformance is a different concept, which is about being better than the mean, but the "stock market" (at least in the US) is often considered that mean.
To consider inflation (i.e. zero, in real terms) to be the mean suggests zero economic growth and/or wealth creation and/or zero-sum activity, and I think it's safe to say it's obvious that's not what's happening.
It may certainly be that the stock market outperforms overall economic growth, but that premium can easily be explained by risk, so long as it's not huge. If S&P500 real returns are 6%, there's not much room for a huge premium to begin with, and I'd be surprised if it's as wide as a full percentage point.
>> If that was the case, then couldn't someone simply
>>establish a perpetual entity to invest and sell their
>>average returns to people with shorter time horizons?
>> Like a corporation that sells annuities?
>
>They exist, of course, but I think you'll find "simply"
>doesn't begin to describe how this works in reality,
>especially with the confounding factor of that
>corporation adding another layer of risk/opacity.
>> any asset with perpetual outperformance
>
>That's different from your initial premise, which was
>returns exceeding inflation. Outperformance is a
>different concept, which is about being better than the
>mean, but the "stock market" (at least in the US) is
>often considered that mean.
>To consider inflation (i.e. zero, in real terms) to be
>the mean suggests zero economic growth and/or wealth
>creation and/or zero-sum activity, and I think it's
>safe to say it's obvious that's not what's happening.
Essentially all my savings are in fact in the stock market. So I'm not promoting, say, gold, or bitcoin, or whatever alternative. I'm just nervous if I can't justify the direction of the herd in spite of the fact it would make me feel better if I was sure the market would keep going up.
Even so, what you propose doesn't quite exist, and my point was that this is because it isn't simple, or, if you will, that your use of "simply" was dismissive of the Devil that's in the details.
Annuities and even perpetuities exist, but even characterizing them as an "everyday thing" is borderline misleading. An annuity is a common instrument for retirement. Otherwise, not so much.
For your proposed use-case of turning long-term returns into short-term ones, for any investor that comes asking, they don't exist at all, AFAIK.
> No, it's not meant to be different. "Outperformance" can mean performance relative to a given benchmark
Fair enough. I was going off the understanding that the benchmark had to, itself, perform, which inflation does not (unlike, e.g., the S&P500, which describes actual performing assets).
> Right now in the US, maybe it's not happening.
Since the context is long-term, "right now" would need to be at least the past 3 decades, so that's an extraordinary "maybe" requiring extraordinary evidence.
> But look at Japan and what's happened to investment returns and inflation in the last 30 years
Japan's overall economic situation appears to be reflected in the Nikkei 225 returns (losses), so consistent with my thesis there, too.
> I'm not promoting, say, gold, or bitcoin, or whatever alternative.
And that's the crux of the issue. None of those examples have much opportunity to produce anything or create additional wealth, whereas companies do. More common alternatives are bonds, which are either another form of capturing the output of companies (including non-publically-traded ones) or of taxes (which, arguably, captures labor output, to the extent that it's income/payroll tax). True alternatives would need to be assets that could do the same, such as land (agriculture, mining).
Foreign buyers could be a catalyst that has inflated the home prices to new heights.