Investors with long time horizons (the relatively young, or institutions) are, for the first time in almost two decades, confronting attractive, although not sensationally attractive, market valuations. There are, nevertheless, formidable pressures for further falls in valuations, as leveraged players continue to be forced to offload assets at bargain prices.

Lawrence Summers:

Martin Wolf is the world's preeminent financial journalist.

Martin Wolf:

The average valuation of the US stock market corresponds to a real return of 6½-7 per cent, which implies an “equity risk premium” – a margin of return over risk-free government bonds – of about 4 percentage points. This has long seemed high. During the great bull market of the 1990s, some even argued that no such premium was justified. But if one has to ask why equity holders should be risk-averse, one need only look at history. For mortals (rather than immortal institutions), the risk of being caught in a bear market (that is, a period of below average valuations) for 15 years, as happened from 1973 to 1988, is scary. Anybody retiring today knows this.

From the recent archive, Niall Ferguson:

The motto “In God we trust” was added to the dollar bill in 1957. Since then its purchasing power, relative to the consumer price index, has declined by a staggering 87 percent. Average annual inflation during that period has been more than 4 percent. A man who decided to put his savings into gold in 1970 could have bought just over 27.8 ounces of the precious metal for $1,000. At the time of writing, with gold trading at $900 an ounce, he could have sold it for around $25,000.

Those few goldbugs who always doubted the soundness of fiat money—paper currency without a metal anchor—have in large measure been vindicated. But why were the rest of us so blinded by money illusion?