The first consequence of low real interest rates that I mentioned – higher asset prices – is the most obvious. Long-lived assets are somewhat substitutable for each other. Hence, investors generally respond to low real yields on bonds by bidding up the price of other long-lived assets – including gold, land, stocks or machines.
It follows that when real interest rates are unusually low by historical norms, asset prices will typically be unusually high relative to historical norms. The second consequence of low real interest rates is that asset returns should be expected to be highly volatile. When the real interest rate is very high, only the near term matters to investors.