=== SUMMARY ===
- The post examines the historical relationship between excess cape yield (no inflation adjustment) and forward excess returns of stocks vs. bonds.
- The author uses this metric to assess the probability of a "lost decade" where stocks underperform bonds.
- The analysis acknowledges data limitations but concludes the metric is broadly useful for forecasting potential underperformance.
- Quality assessment: This is a well-reasoned quantitative analysis (DD) but exploratory in nature, not a specific actionable recommendation.
=== SENTIMENT ===
NEUTRAL
=== TRADE IDEAS ===
No actionable trade ideas in this post. The author presents a macro framework for evaluating long-term stock/bond return differentials without naming any particular ticker, direction, or entry/exit point. The analysis is too general and historical to extract a trade.
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I took a look at the history of lost decades in U.S. markets. In the past, I found that the excess cape yield (no inflation adjustment) does a pretty good job of predicting forward excess returns. So, I wanted to see if we can use the same metric to predict the likelihood of an upcoming lost decade.
Note that ***I define a lost decade as any long-term period where stocks underperform bonds.*** The exact definition, with examples, are in the post.
The study runs into the same issues that a lot of financial models run into - namely, not enough data, serial correlations, and wide standard error. But, broadly, it does a pretty good job in forecasting the potential for future underperformance.