Bogle's 10-Year Forecast

[Christine]

Quote:

Originally Posted by MichaelB Most of the employment population ratio decline is behind us, and it appears the boomer demographic impact is also tapering off. Going forward, the US labor force will once again begin to increase, albeit at a low rate. Still, this points to a period of renewed growth in internal aggregate demand and a positive outlook for the US economy. It should probably also lead to real increases in the median wage.

Some of this both in the US and Europe has been caused by outsourcing production to cheaper countries like China and India. Now I'm reading about production costs in China going up quite a bit thanks to higher wages and other issues. And an old colleague of mine spoke of increasing cost of outsourcing to India.

So what would it take for companies to start moving factories back home? How far are we from this scenario? It would create an increased demand for labourers in US and Europe. Eventually wages would go up and then interest rates?

But like many of you say - nobody knows.

[Totoro]

Quote:

Originally Posted by Christine So what would it take for companies to start moving factories back home? How far are we from this scenario?

It's already happening in niche manufacturing and high-tech.

Since the wage gap is getting smaller the value of doing everything in house with short supply chains is increasing, especially for innovative companies. An extreme example is SpaceX.

On the bottom end of the value scale manual labor is first jumping to other countries. Think China outsourcing to Vietnam.

In other areas there is no coming back though. The manufacturing regions in China have such a large installed base that there are enormous eco-system and scale benefits of producing there.

Talking about large scale consumer products (Foxconn). Those won't move back, but they will automate to lights-out factories in short order. Foxconn specifically is automating large parts of their factories already.

[ripper1]

Quote:

Originally Posted by 34rlsa Harry Dent has been making the "demographic cliff" argument for years. He is actually quite convincing... much of what he describes makes a lot of sense. But from my experience... you can't expect or predict market reactions to make sense. If you want to really depress yourself read his predictions. He is calling for the DOW to hit 6000 in the next 20 months.

If not then...then the next 20 months. Or maybe in the next five years or....

[audreyh1]

Quote:

Originally Posted by Christine Some of this both in the US and Europe has been caused by outsourcing production to cheaper countries like China and India. Now I'm reading about production costs in China going up quite a bit thanks to higher wages and other issues. And an old colleague of mine spoke of increasing cost of outsourcing to India. So what would it take for companies to start moving factories back home? How far are we from this scenario? It would create an increased demand for labourers in US and Europe. Eventually wages would go up and then interest rates? But like many of you say - nobody knows.

Already has been happening for a few years now.

[audreyh1]

3.5% nominal return for a 50/50 portfolio, under the conservative assumptions that the P/E ratio drops to 15 and bond rates remain low.

But I don't think you can turn around use an average inflation of 2% in the same scenario. 1% would be more reasonable.

So maybe 2 to 2.5% real depending on your fees.

[Fermion]

I am of the mind that the real dumb person is the one who is making a 10 year forecast. A bit ashamed of Bogle here. Maybe early onset something?

[NW-Bound]

To make a precise and detailed prediction, yes, one would be foolish to do so. But to state what is most likely among the realm of possibility, no.

For example, people have been saying SS will run into trouble and will need more tax and/or less benefits. Are they crazy for saying so?

[samclem]

Quote:

Originally Posted by Fermion I am of the mind that the real dumb person is the one who is making a 10 year forecast. A bit ashamed of Bogle here. Maybe early onset something?

Don't we all make forecasts? How else set expectations and decide pn a target AA? And, in fairness, he hedged plenty when he gave his opinion. A 10 year forecast is a lot more defensible than a one year forecast.

[Fermion]

Quote:

Originally Posted by NW-Bound To make a precise and detailed prediction, yes, one would be foolish to do so. But to state what is most likely among the realm of possibility, no. For example, people have been saying SS will run into trouble and will need more tax and/or less benefits. Are they crazy for saying so?

If they go so far as to call people dumb or stupid for expecting SS to be there in the future when it has been there in the past for 50+ years, then yes, they are a bit crazy.

He didn't just say he thinks the market will be lower for the next 10 years. He actually called people dumb to think otherwise.

[NW-Bound]

I will have to read the interviews again. I thought Bogle said that return would likely be below the historical average, not that it would be negative.

Anyway, though I think Bogle is likely to be right, I will not mind that he turns out to be pessimistic. I want to set my expectation low, and reduce the risk of getting disappointed.

[Fermion]

I think we place too much faith in these larger than life investors. They can be wrong, sometimes very wrong.

Remember that guy Bill something? He called for much higher interest rates in 2011 and arranged a pretty big bond fund to profit from his predictions. He ended up being a bit wrong.

[tmm99]

Quote:

Originally Posted by Fermion I think we place too much faith in these larger than life investors. They can be wrong, sometimes very wrong.

I wonder if Bogle has been wrong a lot of times in the past? Just curious...

[NW-Bound]

Gross was making a very specific bet on the timing of the interest move, and yes, he lost big time.

But if one says that interest rate will be higher in the next 10 years compared to what it is now, will you say that it is likely?

[Fermion]

Quote:

Originally Posted by NW-Bound Gross was making a very specific bet on the timing of the interest move, and yes, he lost big time. But if one says that interest rate will be higher in the next 10 years compared to what it is now, will you say that it is likely?

Yes, I would say it is likely. I would not call you dumb for arguing differently though. We have examples where interest rates have stayed low for long periods after all.

[NW-Bound]

It is true that things don't always work out the way we think. Heck, I would be rich otherwise.

But while it is not prudent to make plans according to a precise course of events, we all think about what is likely to happen and act accordingly, but after hedging in case it works out differently.

[NW-Bound]

I think Bogle runs into trouble, even among his followers, when making a forecast because it seems to contradict what he is well known for saying: "You cannot time the market".

There are many ways to time the market, but the one that makes the most sense to me is to use a metric like P/E. But Bogle seemed to say that one could not even do that. What did Bogle say in the heat of the 2000 dot-com bubble? Does anyone recall if he said it was OK to sell? However, I remember that in the recent crash of 2008-2009, Bogle was not advocating buying either.

Bogle is not really my hero. I do not consider anyone to be a saint, but will reflect on each statement they say to see if I would agree.

[photoguy]

Quote:

Originally Posted by tmm99 I wonder if Bogle has been wrong a lot of times in the past? Just curious...

That's a good question. I was wondering how well his forecasts of expected returns have been doing since he's been making them for some time. A brief search turned up:

http://johncbogle.com/wordpress/wp-c...ds-14-2015.pdf

See slide 19

Basically he claims an R^2 of 0.65 on 10 year returns. This is actually much better forecast than I would have guessed since it's significantly better than PE10 (going by my memory PE10 has R^2 of somewhere around 0.4 to 0.5).

I don't know how exactly this was computed and I'm suspicious there might be a methodological error as his R^2 is so good.

However, there's a lot of data/models/other academics supporting his position that returns are going to be significantly lower than historical going forward.

[daylatedollarshort]

There is a summary version of the Triumph of the Optimists online. Since 100 years of U.S. stock market history may not be large enough dataset to make statistically valid predictions for the next 50 years, I think this is an interesting read as they looked at stocks historically and across 16 countries:

http://www.econ.uniurb.it/materiale/..._optimists.pdf

I doubt any financial pundit 20 years ago predicted the economy we have today, so for me it is probably more helpful to look at all possible outcomes and probabilities, instead of one person's predictions. We have a spreadsheet with inflation and returns as variables and we just plug in all sorts of different scenarios and make sure we are set no matter what happens.

[NW-Bound]

Quote:

Originally Posted by daylatedollarshort ...We have a spreadsheet with inflation and returns as variables and we just plug in all sorts of different scenarios and make sure we are set no matter what happens.

I never have any spreadsheet, and just try to keep my WR at 3.5% and off a portfolio that's reasonably balanced.

In the worst case, I often say that I have that modest class C RV that I can park on New Mexico state land for a few hundred bucks per year. It has to be really bad if it comes down to that, because with SS alone we should be able to keep our stick homes.

Do you think my above doomsday scenario bad enough? And even then, I can still enjoy life like so many boondocking RV'ers whose blogs I have read.

So, me worry?

[tinybro]

I think Jack Bogle gets a pass becuase he started Vanguard and he is consistent in his investing rationale. He is a pretty smart guy, not sure he's any better at it than the next "Master of the Universe".

I agree with others, plan for the worst and be happy with a better outcome.

I actually think in 10 years, once the awful Boomers (of which I'm one) move to the sidelines, things will be much, much better.

The economy will shift away from crazy consumption to some other calmer, kinder more sustainable place....A discussion for another day.

Shifting the conversation slightly and hopefully not being a hog, has anyone tried peer to peer (P2P) lending (Lending Tree/ Prosper)?

I dropped $10K into Lending Tree 15 months ago and have been very pleased (8.7% net return).

Has anyone partnered with these entities long term & could they indicate results.

I don't like that it's quite illiquid (you can sorta trade notes). I haven't cared near term (reinvesting).

I also agree that the market is a casino, if P2P lending has legs, I might stick more $$ there.

Not meant to be a shill for P2P lending & if I'm off topic, my apologies.

Thanks