In a fascinating conversation with Jim Bianco of Bianco Research, we explored what investors should realistically expect from markets over the coming years. Jim introduced his “4-5-6 market” framework—a sobering but practical outlook suggesting cash will return 4%, bonds 5%, and equities just 6% annually. This represents a marked departure from the extraordinary returns many investors have grown accustomed to in recent years, but according to Jim, it’s a return to more historically normal conditions that preceded the zero-interest rate era.
The foundation of Jim’s thesis rests on his belief that we’ve entered a structurally different economic environment characterized by persistent 3% inflation rather than the sub-2% environment that dominated the pre-pandemic era. This shift is driven by several significant changes in the global economy, including the trend toward deglobalization (or what some now call “segmentation”), the dramatic expansion of remote work, and what the Federal Reserve terms “unanchored inflation”—the phenomenon where businesses raise prices across their entire product range simply because the environment permits it, even when costs haven’t increased for all products.
Perhaps most compelling was Jim’s explanation of why we cannot return to the ultra-low interest rates of the past decade. As he pointed out, the combination of persistent inflation and massive government deficits (currently at 6.5% of GDP—the largest peacetime, non-crisis deficit in American history) means that any attempt to substantially lower rates would likely trigger a bond market collapse. In a striking hypothetical, he asked what would happen if Donald Trump suddenly reversed course on tariffs and embraced unlimited deficit spending. The bond market’s likely reaction? Complete collapse, as investors would flee from the prospect of astronomical issuance and even higher inflation levels.
The conversation took a particularly poignant turn when discussing the human costs of globalization. While acknowledging globalization’s benefits of cheaper goods and greater opportunities, Jim cited disturbing statistics showing that Americans without college degrees (approximately 65% of the population) have life expectancies seven years shorter than those with degrees. This dramatic disparity is largely attributed to what economists’ call “deaths of despair”—liver disease, drug overdoses, alcoholism, and suicide—stemming from the loss of manufacturing and industrial jobs that once provided dignified livelihoods for those without higher education.
This reality has prompted even staunch free-market advocates like former Goldman Sachs chairman Lloyd Blankfein to reconsider the trade-offs. As Jim explained, perhaps paying slightly more for goods is worth it if it means providing hundreds of thousands of Americans with jobs that can support families. This represents a fundamental reevaluation of globalization’s true costs and benefits that transcends traditional political lines.
For investors, the most actionable insight may be the recognition that cash and bonds now offer positive real returns (returns exceeding inflation) for the first time in many years. This changes the risk-return calculation substantially, as investors no longer need to venture into increasingly speculative assets simply to preserve purchasing power. Jim suggests that while broad market index funds may deliver modest returns, opportunities for outperformance will likely emerge in specific themes, sectors, and potentially through skilled active management—a return to market dynamics more reminiscent of the 1990s than the post-2008 era.
As Jim eloquently summarized, “Change is not worse, it’s different.” The new economic reality will present plenty of opportunities to prosper, but they won’t resemble the strategies that worked over the past decade. Investors who adjust their expectations and approach accordingly may find themselves well-positioned for what comes next, while those waiting for a return to pre-COVID conditions may be left disappointed. The key is understanding that we’ve entered a new economic cycle—one that demands fresh thinking but also offers meaningful rewards for those willing to adapt.