The point of this diversion into macroeconomic history is that there is more to the relationship between equity returns, inflation, and relative yields than can be captured in simple year-to-year correlations. There are effects that depend on the momentum, trends, and the higher-order derivatives that are missed in simple correlations but are implicit in expectations about the future that shape returns. For this reason, understanding the broader macro patterns can give more insight into valuation than is typically possible using simple correlations. In fact, most correlations are unstable over
...more
