From The Big Picture, I've included a graph of his projections. The takeaway is that US stocks are very pricey, with negative expected returns of -2% for large US Stocks and -3.5% for Small US Stocks. He says that "high quality" US stocks should return about 3% per annum. I'm not sure what he means, but I'm interpreting "high quality" as large cap stocks with international exposure like those in the S&P 500. Normal equity returns are above +6% per annum (excluding dividends).
But, according to his analysis, international and emerging stock markets are cheap(er) with +2% and +6% expected returns, respectively. Notice that emerging market debt is cheaper too. He includes timber as an alternative asset class as a sort of 'teaser.' I guess he's saying that commodities might be a good investment. All in all, the world's stock markets are too expensive. If you can wait for a 20% correction, then expected returns would be much better. If you're patient, you'll get it. I think that such a correction may very well be underway now and that there may be a selling "climax" in October of this year--not unlike 1987.
Here's the graphic (Click graphic to enlarge).
|Projected Annualized Real Returns Of Assets Over 7 Years (from GMO)|