Mod Note: This was originally posted on 1/2/15 on his blog "Musings on Markets"
At the beginning of 2014, the expectation was that government bond rates that had been kept low, at least according to the market mythology, by central banks and quantitative easing, would rise and that this would put downward pressure on stocks, which were already richly priced. Perhaps to spite the forecasters, stocks continued to rise in 2014, delivering handsome returns to investors, and government bond rates continued to fall in the US and Europe, notwithstanding the slowing down of quantitative easing. Commodity prices dropped dramatically, with oil plunging by almost 50%, Europe remained the global economic weak link, scaling up growth became more difficult for China and the US economy showed signs of perking up. Now, the sages are back, telling us what is going to happen to markets in 2015 and we continue to give them megaphones, notwithstanding their forecasting history. Rather than do a standard recap, I decided to use my favored device for assessing overall markets, the equity risk premium (ERP), to take a quick trip down memory lane and set up for the year to come.