In a recent interview with CityWire, William Bernstein– a neurologist-turned-financial-theorist—shares insights on why we may in a period of radical market dislocation.

Here are key takeaways from the interview:

• The current landscape satisfies the criteria Bernstein has identified as necessary for the creation of a market bubble: “Interest rates are smack up against the zero bound, people are going gaga over crypto and have forgotten what happened during the excruciating market pain in 2008-2009, and no one seems to care anymore about earnings and dividends.”
• Foreign stocks, especially emerging markets, seem less expensive now.
• The best long-term hedge against severe inflation is stocks, since “their assets and earnings represent goods and services whose prices are, almost by definition, denominated in real terms,” according to Bernstein.
• Bernstein predicts that future returns for a balanced portfolio will be lower but argues that the difference between stock and bond returns (the equity risk premium) will remain at about 3% to 4% annually. “Bottom line: your policy allocation shouldn’t be that much different than in the past, unless you want to take more risk, which is not conducive to staying the course when the ottoman hits the fan.”
• According to Bernstein, markets are efficient, an important concept supporting index investing. He argues that data from the last nine decades shows that “almost all money manager outperformance is due to luck, not skill. That is, picking past winners almost never pans out.”