Why investors must look at the ERP not P/E: The ERP gives a much more realistic assessment of valuation than P/E if real bond yields are below the terminal real growth rate. This gap has only really opened up post-2012, increasing the role of the ERP as a valuation framework. The Fed believes that r* (the equilibrium real short rate) is 1.3% below the terminal growth rate. Currently, the TIPS yield is nearly 2% below the terminal growth rate and we think can move to be c3% below. Importantly, it seems highly likely to us that the TIPS yield will stay depressed for the next decade (as that seems the most politically and economically acceptable route to allow government debt to GDP to stabilize and unemployment to fall to low levels). The aggregate policy setting (fiscal, monetary, and corporate lending conditions) are twice as loose as they were at the peak of the GFC, allowing inflation to return while bond yields are capped.