Bush's war on terror and the new geopolitical risk premium.
The figure below compares the S&P 500 earnings yield with the ten-year Treasury bond yield, It shows that, beginning in September 2002--and for the first time since Ronald Reagan's first election--investors required from equities a higher earnings yield than the benchmark bond yield. The event marked a dramatic shift in risk perception, which can be attributed to one thing only: fear of what the Bush Administration has variously called "The Long War" or the War on Terror.
Despite current heightened concerns over the effect of interest rates on U.S. equities, geopolitical risk premium is the real elephant in the living room no one is discussing.
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|Title Annotation:||OFF THE NEWS; George W. Bush|
|Publication:||The International Economy|
|Article Type:||Brief article|
|Date:||Jun 22, 2006|
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