Although I'm a very conservative investor and no cheerleader for stocks, "Albert Edwards favorite chart" doesn't look quite right to me. For that matter, although 20 years is a nice round number, it isn't a very commonly used nice round number; we don't see frequent comparisons of "the last twenty years." In other words, there's no clear explanation of the choice of starting point, which to me is always a red flag. The article itself says "Some will complain that this is cherry-picking the starting point (although that is not true of the chart, which includes the dotcom boom)." Sorry, it still should be assumed that someone is cherry-picking the starting point unless they at least have the courtesy of
stating a reason for the choice.
Even worse is "Buttonwood's" throwaway phrase "...a negative equity risk premium this century." That is intentionally putting the patina of the word "century" on a decade and a half! I am very embarrassed to tell you how badly my aging brain is functioning, but the first thought that ran through my head was "That's impossible, the data for Dimson and Marsh since 1900..." and then remembered when "this century." I'm tempted to say "At least I know what century to write on checks," but "checks" dates me even worse!
For another, the choices of particular kind of stock and particular kind of bond are just a bit "off." They're not unreasonable, but they're not what I invest in. Long-term bonds, although they
are frequently cited, are riskier (and have more return) than the bond market as a whole, so while they are the kind most likely to outperform stocks on occasion, they are also the kind likely to have the worst underperformance over periods of time when they aren't outperforming stocks.
Basically, though, for whatever it's worth, and as the article notes... the "problem" from my point of view as a U.S. investor who is not an enthusiastic internationalist--is that as you can see, over the last twenty years,
my bonds--that is to say the total U.S. bond market, Vanguard Total Bond, orange.--certainly did not outperform
my stocks--that it to say the total U.S. stock market, Vanguard Total Stock, blue. (S&P 500 would have performed similarly).
What actually seems to have happened is that the last twenty years were a particularly bad time for
non-U.S. stocks. (Vanguard Total International, green).
By the way, and I do not want to wave the Stars and Stripes and I
don't think the next century will be the same as the last--but it is still a long-term historic fact that over the last 115 years, U.S. stocks returned an annualized 6.5% real, while the world ex-US returned 4.4%.
Source
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.