If there are two rules in investing they are that magnificent portfolios attract inflows, and inflows ultimately destroy magnificent portfolios. As this magnificent portfolio came to dominate all others, the price of risk assets and bonds rose, inexorably, reflexively. Everything is now expensive, so that today’s ratio of private sector wealth to GDP is 5.0x, an unprecedented high (this ratio is naturally mean-reverting and its long-term average is roughly 3.8x. It hit 4.4x at the 2000 peak then fell to 3.8x. It hit 4.7x in 2007 then 3.8x in 2009).
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