Most infrastructure funds in Brazil say they target nominal returns of around 20%.
It is interesting to me that only two of the asset classes produced positive nominal returns in all three periods, that being 7-10 year Treasuries and of course T-Bills.
The fall in inflation, which is driving down future nominal returns and so reducing the prospective value of the endowment policies, also means that homebuyers are paying less in mortgage-interest payments.
By pegging nominal interest rates at artificially low levels, the Fed is penalizing millions of people who have their assets in saving accounts or money market funds and are getting near zero nominal returns.
But with the average rate on a savings account at 0.24 percent, on a money market account at 0.22 percent, and on a 1-year CD at 0.53 percent, nominal returns are close to zero, and real returns are negative even at relatively low rates of inflation.
More intermediaries also mean more costs, at a time when nominal equity returns have been very low over the past decade.
Real estate had nominal negative returns in two of the three periods, and in one period it produced a positive real return.
The only time when cyclical recoveries have produced low returns has been when nominal bond yields were even lower than they fell in June.
Note that the real return since 1926 is almost 1% per year higher, a fairly material difference in terms of returns, and yet the nominal return was almost identical (9.9% annually since 1926 versus only a slightly lower 9.7% since 1957).
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In economic textbooks currency movements counter the differences in nominal interest rates between countries so that investors get the same returns on similarly safe assets whatever the currency.
With inflation expectations that exceed the nominal interest paid on saving accounts, money market funds, and Treasuries, real returns are negative.
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This is why I prefer to show expected market returns on an inflation-adjusted (real return) forecasts as well as nominal return expectations.
The danger is to think that rapid increases in the monetary base will keep nominal interest rates permanently lower and that the excess reserves will not eventually be lent out in search of higher returns.
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