A Bear Market For The Next 15-20 Years?

[NW-Bound]

More output is good, but only if there's a demand for it. The world is now awash with commodities and products. Yes, there's more wealth, in the sense that everybody now has huge TVs, electronic toys galore, more food to eat to get more obese. But I do not see that the higher standard of living will guarantee higher stock prices.

PS. Developing countries still have quite a bit to go to catch up with the US and other developed countries. That's my hope, but their stock markets have been in the doldrum the last few years. Patient, patient.... Any day now... A leveraged EM ETF I own jumps more than 9% today.

 

[HFWR]

Aren't there a few billion people still living in squalor, who need clean water, shelter, medical care, Gucci purses, iPhones, and 5-Hour energy drink?

 

[aja8888]

Aren't there a few billion people still living in squalor, who need clean water, shelter, medical care, Gucci purses, iPhones, and 5-Hour energy drink?

You left out BMW's and personal trainers.

 

[HFWR]

you left out bmw's and personal trainers.

 

[Totoro]

The (growing?) pessimist in me thinks economist Robert J. Gordon is on to something when he points out that the truly big innovations that transformed life and business all happened before the 1930's. The 20th century was a period of exploiting those discoveries resulting in revolutionary economic growth. That growth accounts for the bull market you correctly identify.

Anti-conception. Anti-biotics and virals. Mobile communications. The Internet.

Sure, radio and medicine existed but those four transformed whole societies pretty drastically throughout the 20th century. There's probably better examples out there.

But will it continue? The 21st century has yet to see anything comparable in terms of revolutionary innovation. Economic growth has slowed accordingly.

We're only 16 years in the new century, but as an indication solar power dropped by several orders in magnitude in cost that's upsetting the energy business, new vaccines and low cost treatments are being launched saving billions of lives, the cost of launching items into space is about to drop with a factor of 10. Not transformative maybe, not peanuts either.

In the pipeline however: driverless cars, replacement organs made from your own cells, specific gene editing to correct faulty DNA and repair diseases, curing cancer by your own cells, reversing alzheimer, artificial intelligence that beats experts in every topic imaginable.

We're talking about approaching biological immortality and machines that can do any job a human can do for a fraction of the cost.

While none of these are available at your nearest supermarket, they for sure will be in the next 80 years if current trends continue. They all have been field demonstrated.

Then again, just my opinion ..

 

[NW-Bound]

Aren't there a few billion people still living in squalor, who need clean water, shelter, medical care, Gucci purses, iPhones, and 5-Hour energy drink?

Yes, there are still people who can use a lot of stuff. Even here in the US too. Or in Greece.

The problem is that they have no money to pay for it. Nor do they have the means to make money. Will that change? I have been waiting patiently with my EM stocks.

 

[Amethyst]

Have never cottoned to the idea that you can look at a graph of some other point in time and somehow extrapolate to this one and then make predictions. As far as I can tell, every day is unique, let alone every year.

 

[Gone4Good]

Anti-conception. Anti-biotics and virals.

Penicillin was discovered prior to 1930. That really was a huge game changer but it also fits right in with Gordon's second industrial revolution.

Birth control meds certainly came after and were a boon to women. But their economic impact may be a bit of a wash. Women's greater ability to enter the workforce was huge but it came at the "expense" (economically speaking) of smaller family sizes and population growth.

Mobile communications. The Internet.

There's a bit of an interesting question regarding this stuff that no one seems to be able to answer.

All the way back in 1987 economist Robert Solow quipped "you can see the computer age everywhere except in the productivity statistics." Since then computers have gotten so pervasive we all carry at least one around with us constantly. It seems like a revolutionary time to us casual observers, but productivity growth (the thing that drives economic wealth creation) has been a big disappointment.

We had a bit of a bump around 2000, but overall productivity growth in the U.S. is far lower than was typical prior to 1970.

No one knows why, exactly.

In the pipeline however: driverless cars, replacement organs made from your own cells, specific gene editing to correct faulty DNA and repair diseases, curing cancer by your own cells, reversing alzheimer, artificial intelligence that beats experts in every topic imaginable.

We're talking about approaching biological immortality and machines that can do any job a human can do for a fraction of the cost.

Yup, that's the stuff we're all hoping for.

 

[NW-Bound]

I am not holding my breath for "immortality" medicine advances. I have read books written by MDs who appear to be disillusioned and do not sound as hopeful as laymen.

I am still waiting for robots that can take care of the elderly, like changing their diapers and bathing them. There's a need for that soon for the aging boomers.

 

[Gone4Good]

More output is good, but only if there's a demand for it.

Maybe inadequate demand is a different side of the same coin as inadequate innovation.

I can see most everyone in the country working an extra job or doing everything possible to pay for indoor plumbing, installing electricity, getting an automobile or even to acquire things like air conditioning, a first television or a dishwasher. Getting the latest version of Candy Crush, meanwhile, doesn't seem quite so important by contrast.

Edit to add: Many of the "new things" we're buying today are just replacements of old things we used to buy. How many individual items does a smartphone replace (landlines phones, camera, clocks, watches, calculator, computer(?), etc.)

Solar power, while great for the environment, will just replace existing power stations. Driverless cars will replace the ones we already buy. Moreover, driverless cars will likely result in fewer cars demanded because many more of us will just Uber up one on demand rather than having millions of them constantly parked idle.

 

[VFK57]

So looking more closely at the article it says a couple of things:

I think this grow directly relates to inflation. Compare dollar value of 1940 and 2016. In 1940 minimum pay was $0.30 p hour while currently it is about $9 p hour and many States push it to $13 -$15 p hour.
If the Feds are going to succeed in their goal on inflation then Market is going to continue secular drive up, although much slower than during past 7 years (unless another round of money printing is in their plans).

 

[marko]

If I read his article correctly, am I alone in not realizing that the past 17 years have been a bear market?

A year or two ago, someone here posted this chart which I found helpful. Now I'm just confused..

 

[nun]

I have no control over the stock market and can't predict where it will go. The value of stocks has something to do with history in as much as it influences the present economy and investor sentiment and of course future events are important too. But as I like to be in control rather than trusting my fortunes to past results and Monte Carlo mathematics (at least directly), I do two things that I can control. I control my spending and use a liability matching portfolio based on pensions, rental income and SS. If your income comes from these sources and maybe dividends, bond ladder and CD interest too and you never have to use principal a Bear market shouldn't be a worry.

 

[audreyh1]

If I read his article correctly, am I alone in not realizing that the past 17 years have been a bear market?

A year or two ago, someone here posted this chart which I found helpful. Now I'm just confused..

View attachment 23117

Well, certainly those of us who retired in 1999 or 2000 have been very aware we have been in a long bear market phase. Maybe for those who retired later it was not so obvious.

 

[Mulligan]

Anti-conception. Anti-biotics and virals. Mobile communications. The Internet.

Sure, radio and medicine existed but those four transformed whole societies pretty drastically throughout the 20th century. There's probably better examples out there.



We're only 16 years in the new century, but as an indication solar power dropped by several orders in magnitude in cost that's upsetting the energy business, new vaccines and low cost treatments are being launched saving billions of lives, the cost of launching items into space is about to drop with a factor of 10. Not transformative maybe, not peanuts either.

In the pipeline however: driverless cars, replacement organs made from your own cells, specific gene editing to correct faulty DNA and repair diseases, curing cancer by your own cells, reversing alzheimer, artificial intelligence that beats experts in every topic imaginable.

We're talking about approaching biological immortality and machines that can do any job a human can do for a fraction of the cost.

While none of these are available at your nearest supermarket, they for sure will be in the next 80 years if current trends continue. They all have been field demonstrated.

Then again, just my opinion ..

Why do they continue focusing on all the meaningless transformations. Lets get the best minds together and focus on something important....Like growing a real scalp full head of hair.


Sent from my iPad using Tapatalk

 

[Gone4Good]

I think this grow directly relates to inflation. Compare dollar value of 1940 and 2016. In 1940 minimum pay was $0.30 p hour while currently it is about $9 p hour and many States push it to $13 -$15 p hour.

Wage growth has historically exceeded inflation.

As part of his PE10 calc Robert Shiller already discounts the S&P 500 by the CPI index. If you look at his data, you'll see that the 1940 S&P as priced in today's dollars would be around 210 vs. nearly 2,000 today.

 

[Gone4Good]

Well, certainly those of us who retired in 1999 or 2000 have been very aware we have been in a long bear market phase. Maybe for those who retired later it was not so obvious.

Absolutely. Adjusted for inflation the S&P 500 has gone nowhere since the end of the dot.com bubble. As measured in today's dollars the S&P peaked somewhere around 2,040 in August 2000. This Friday the S&P 500 closed at 1,940.

So for 15 year's you've basically kept pace with inflation, plus clipped a dividend of around 1.9% per year.

 

[Gone4Good]

If I read his article correctly, am I alone in not realizing that the past 17 years have been a bear market?

A year or two ago, someone here posted this chart which I found helpful. Now I'm just confused..

If you work through the math of the chart it might become a little clearer. Following the peak which occurred around the year 2000 what followed was a sequence of returns of (44.7%), 108.7%, (50.9%), and 183% (according to the chart). When I apply those returns to a starting balance of $100, this is what I get:

Year 0: $100
Bear 1: $55
Bull 1: $115
Bear 2: $56
Bull 2: $160
Bear 3:

Now there is certainly growth from peak to peak (about 3% annualized). But that's an awful lot of pain for some pretty modest gain. Even if the general trend has been modestly upward, you might forgive people who put money into the market in 2000 for thinking it wasn't a great idea. If you invested at any other time, though, you probably did quite well.

 

[NW-Bound]

Why do they continue focusing on all the meaningless transformations. Lets get the best minds together and focus on something important....Like growing a real scalp full head of hair.

Eh, I still have a full head of dark hair with so little gray that people have accused me of dyeing. No need for help there.

Absolutely. Adjusted for inflation the S&P 500 has gone nowhere since the end of the dot.com bubble. As measured in today's dollars the S&P peaked somewhere around 2,040 in August 2000. This Friday the S&P 500 closed at 1,940...

I checked and it is worse than that.

The S&P closed at 1527 on 3/24/2000. The cumulative inflation since then is 1.382, so that is equivalent to 2110 today, vs. 1940 last Friday. So, not counting the puny dividend of 2%/yr, you have lost 8% over the years.

During the bull run of 2009-2014, accumulators were chest thumping for building up their stash, which was of course great. However, ER's like myself have no fresh money to buy, and the only way to buy cheap stocks is for the market to crash, and to rebalance.

Still, with rebalancing, you can only get ahead by overweighting equity when the market is low, and lightening up when the market is high. In other words, you need to be market timing. Not that I think it is "dirty" or anything (why is buy low/sell high anything is smart, but dirty with stocks?), but just that it is hard.

 

[target2019]

Eh, I still have a full head of dark hair with so little gray that people have accused me of dyeing. No need for help there.


I checked and it is worse than that.

The S&P closed at 1527 on 3/24/2000. The cumulative inflation since then is 1.382, so that is equivalent to 2110 today, vs. 1940 last Friday. So, not counting the puny dividend of 2%/yr, you have lost 8% over the years.

During the bull run of 2009-2014, accumulators were chest thumping for building up their stash, which was of course great. However, ER's like myself have no fresh money to buy, and the only way to buy cheap stocks is for the market to crash, and to rebalance.

Still, with rebalancing, you can only get ahead by overweighting equity when the market is low, and lightening up when the market is high. In other words, you need to be market timing. Not that I think it is "dirty" or anything (why is buy low/sell high anything is smart, but dirty with stocks?), but just that it is hard.

It is great to be working and buying more shares at lower prices!


No it isn't.

 

[Walt34]

It all depends. How has butter production in Bangladesh been lately?

The Bangladeshi butter-production theory of asset prices | TIME.com

 

[Gone4Good]

I checked and it is worse than that.

I'm not surprised. I did my calc based on month-end numbers, which almost certainly wasn't the ultimate peak.

But maybe a possible positive spin on this is that even folks who absolutely top-ticked the market didn't fare that poorly considering how ridiculous that market was. Of course plenty of people bought into tech stocks that went to zero, so there's that.

On the idea of dirty market timing through re-balancing, that's my strategy. I'm a seller into bull markets when valuations look stretched (like now) and a buyer when valuations give me more earnings and dividends per dollar.

Right now I'm only 50/50 stocks/fixed income. I'll start increasing my allocation when / if valuations go down. If not, I'm comfortable owning expensive assets with this mix of risk for as long as they remain expensive. (P.S., I'm also underweight duration)

 

[marko]

If you work through the math of the chart it might become a little clearer. Following the peak which occurred around the year 2000 what followed was a sequence of returns of (44.7%), 108.7%, (50.9%), and 183% (according to the chart). When I apply those returns to a starting balance of $100, this is what I get:

Year 0: $100
Bear 1: $55
Bull 1: $115
Bear 2: $56
Bull 2: $160
Bear 3:

Now there is certainly growth from peak to peak (about 3% annualized). But that's an awful lot of pain for some pretty modest gain. Even if the general trend has been modestly upward, you might forgive people who put money into the market in 2000 for thinking it wasn't a great idea. If you invested at any other time, though, you probably did quite well.

So, I've been fat, dumb and happy for the past two decades thinking things --on average--are great with my 7-8%+ average annual growth. If indeed we are leaving a bear market and entering a bull, (in the words of that great wit, Mike Tyson) I won't know whether to be ecstatic or ludicrous!

 

[Looking4Ward]

I just realized I made an error in the title of this thread and the link to the article.

I put "Bear" when it should have been "Bull".

 

[6miths]

I'm always left wondering if the people who lived in the mid-1700s or mid-1800s had any idea what was to come. My guess is.... NOT!