"experienced" investors: is this time different?

[MichRoots]

The 2 huge market declines in my lifetime seem quite different so far. In 2008, i think the Michigan unemployment rate was around 14% and I think we are around 4.5% today. Oil had crashed from $140 a barrel to maybe $50 a barrel. That's the conditions needed for a 50% crash.

In 2000, the SP500 was at 1500 which was extreme. If we extrapolate 7% returns from then to today, the SP would have to hit around 7000 for a fair comparison. After a large increase in unemployment and the Iraq War the SP 500 lost 50% by 2003.

So unless economic conditions crater, we have already dropped nearly 25%. I think it will be difficult for the SP500 to drop below the pre pandemic high of 3386. Way too much money sloshing around out there.

[HomerJ]

Of course you don't have to pick a specific date to validate an asset allocation. But if the date that someone mentions just happens to start at the ATH of the volatile asset, then obviously the results aren't going to be very good and won't be representative of most time periods.

And the opposite is true,

Your AA of 70% gold/20% swiss francs has under-performed almost every 20-year period except the one you picked.

[technovelist]

By the way, 50-50 gold and stocks has been discussed somewhere recently and it is way better for the past 20 years than any of the others, with a 9.77% CAGR for that time period:

Again, a very specific focus on a start date is highly suspect to me. I guess you feel it proves something?

50/50 gold/stocks has very good results for 5, 10, 15, and 20 years from the present, those timeframes picked more or less arbitrarily without trying to time anything. I didn't try any others but have no reason to believe those are the only good timeframes.

80/20 gold/stocks is pretty good too by backtesting, better than my current allocation on all those timeframes. I may shift to that after looking at the results on portfoliovisualizer.

[Da5id]

By the way, 50-50 gold and stocks has been discussed somewhere recently and it is way better for the past 20 years than any of the others, with a 9.77% CAGR for that time period:

Again, a very specific focus on a start date is highly suspect to me. I guess you feel it proves something?

50/50 gold/stocks has very good results for 5, 10, 15, and 20 years from the present, those timeframes picked more or less arbitrarily without trying to time anything. I didn't try any others but have no reason to believe those are the only good timeframes.

80/20 gold/stocks is pretty good too by backtesting, better than my current allocation on all those timeframes. I may shift to that after looking at the results on portfoliovisualizer.

Gold has had a nice run in the most recent 20 years on which you are apparently basing your decisions. Gold was *down* for the 20 year period prior to that. What it will do for the next 20? Who knows? Not me certainly. 80% gold is way out of the mainstream in bogleheads, but we each get to do as we please with our investments and live with the consequence, good or bad.

[url]https://www.portfoliovisualizer.com/bac ... ion1_1=100[/url

[technovelist]

By the way, 50-50 gold and stocks has been discussed somewhere recently and it is way better for the past 20 years than any of the others, with a 9.77% CAGR for that time period:

Again, a very specific focus on a start date is highly suspect to me. I guess you feel it proves something?

50/50 gold/stocks has very good results for 5, 10, 15, and 20 years from the present, those timeframes picked more or less arbitrarily without trying to time anything. I didn't try any others but have no reason to believe those are the only good timeframes.

80/20 gold/stocks is pretty good too by backtesting, better than my current allocation on all those timeframes. I may shift to that after looking at the results on portfoliovisualizer.

Gold has had a nice run in the most recent 20 years on which you are apparently basing your decisions. Gold was *down* for the 20 year period prior to that. What it will do for the next 20? Who knows? Not me certainly. 80% gold is way out of the mainstream in bogleheads, but we each get to do as we please with our investments and live with the consequence, good or bad.

[url]https://www.portfoliovisualizer.com/bac ... ion1_1=100[/url

80% gold (actually 70% + some Swiss Francs) is way out of the mainstream for everyone other than possibly the fabled "gnomes".

I've had gold a lot longer than 20 years (although not as big a proportion as now), and of course it will fluctuate.

It's also true that bonds have had a 40 year run of decreasing rates and increasing prices, from 15% or so in 1980, down to nearly 0% recently. What will they do for the next 20 years? No one knows, although it seems difficult for them to repeat that performance from here. However, that doesn't stop people from allocating a lot of their portfolio to them.

As you point out, we each decide how to invest and live with the consequences.

[HomerJ]

80% gold (actually 70% + some Swiss Francs) is way out of the mainstream for everyone other than possibly the fabled "gnomes".

That's for sure.

So do you really think you're smarter than everyone?

[JBTX]

And then it does work out again.

So far, every single crash, has been followed by new historic highs where someone who just stayed the course, still gets rich.

Except Japan but of course that couldn't happen here cause 'Merica.

Japan… never mention this without mentioning along with it the PEs of 95. Any Boglehead with a sane portfolio who rebalanced would be sitting on a gigantic pile of bonds after such an event. With that you can survive the ensuing decades of 0 growth. It would mean the S&P would be around 20k, and those with a $4m 60/40 portfolio would be sitting on some $8m in bonds after such an event.

I’ll take Japan any day of the month. Bring it.

Given PEs are a paltry 18 and falling, I like my odds that it won’t happen.

This time is likely the same as the others, in the sense it will reward those who stay the course (as Japan did!). It will have its own twists, such as inflation, but my guess is it will be a lighter/faster version of the 70s. Faster because information flows much faster these days, and lighter because the fed has learned from the 70s experience. In fact an entire generation of bankers grew up studying Volcker and to a degree idolizing him.

So, I’m not worried at all. And if something terrible happens, there is little I can do which is meaningful — that if wrong — wouldn’t financially ruin me (if it doesn’t end up happening).

A few things. I think you are mixing PEs. The Japan 95 PE I’m pretty sure was a CAPE10. Your current US PE looks like a forward PE. The current US cape 10 is just under 30.

Even if you were a Japan investor, and bought at about a 40pe cape 10, your long term returns would still be very low, and negative for a couple of decades.

I’m not sure about your bonds comment. Either back then you would have been older investor around retirement age, say 60/40 or 50/50. The stock portion would have devastated your bond portion and it would have take a long time to recover, or, you would have been a younger investor near 100% stocks and would have been in the hole for decades (after 20 years of dollar cost averaging things would have recovered OK).

It is really hard for me to imagine that many Americans, even most Bogleheads, would have the stamina to slog through that time frame.

[technovelist]

80% gold (actually 70% + some Swiss Francs) is way out of the mainstream for everyone other than possibly the fabled "gnomes".

That's for sure.

So do you really think you're smarter than everyone?

No, and I didn't say I was.
I have very unusual opinions based on my lifetime of economic analysis.
I don't expect anyone else to have the same opinions as I do.
That doesn't make me smarter than everyone, or for that matter smarter than anyone.
It just makes me different.

[HomerJ]

80% gold (actually 70% + some Swiss Francs) is way out of the mainstream for everyone other than possibly the fabled "gnomes".

That's for sure.

So do you really think you're smarter than everyone?

No, and I didn't say I was.
I have very unusual opinions based on my lifetime of economic analysis.
I don't expect anyone else to have the same opinions as I do.
That doesn't make me smarter than everyone, or for that matter smarter than anyone.
It just makes me different.

Fair enough...

My apologies for the tone...

[R-Man]

My 2 cents - this time is different BUT every time it is different just in a different way.

[Tamalak]

Gentlemen, our long bear market is finally over!

[Marseille07]

Gentlemen, our long bear market is finally over!

We're out of bear territory but still in a bear market until we renew the ATH.

[Candor]

Gentlemen, our long bear market is finally over!

Today's market action doesn't fit any definition I've ever heard that would indicate the end of this bear market but maybe it is the beginning of the end.

[technovelist]

80% gold (actually 70% + some Swiss Francs) is way out of the mainstream for everyone other than possibly the fabled "gnomes".

That's for sure.

So do you really think you're smarter than everyone?

No, and I didn't say I was.
I have very unusual opinions based on my lifetime of economic analysis.
I don't expect anyone else to have the same opinions as I do.
That doesn't make me smarter than everyone, or for that matter smarter than anyone.
It just makes me different.

Fair enough...

My apologies for the tone...

[White Coat Investor]

It’s a walk in the park compared to 2008.

We have full employment right now. Everybody has gobs of cash. This whole thing would feel very different is folks were losing their jobs.

Remember, we are just back to where we were like 14 months ago….

I don’t sense a feeling of “fear” or “despair” in people, like I did in the past.

Agreed. I also find it kind of funny that the OP remembers 2020, but not December 2018 or 2011. All of which had similar drops to what we've seen so far in this one.

As near as I can tell, the closest historical parallel is the 70s Stagflation period, which is obviously pretty worrisome. Hopefully we learned our lessons and can tackle inflation and come out of the recession faster and with less pain this time.

[ejb]

I have no idea if it is different this time. I’d invest in my personal skills, capital, education AND live beneath my means and invest - that is all you can do. You can’t control the rest. Learn a skill that people will pay you to do.

Replying to say this is a great response. We've long been on a mission to hustle to accelerate retirement (something that to me still seems challenging at best), which can be a total chore, but increasingly with age I recognize and appreciate the value of marketable skills. You find this very quickly when you need to hire a trade and you look at the bill that follows.

We both have our career skills (specialized bachelor's, master's), but have also continued to manage a cash flow positive rental property, seasonal Airbnb spaces, and we use our spare time to nurture our own small agriculture business as a long term supplemental source of income and to reduce our own food expenses. Everyone's case is different, but the advice to grind on multiple skills (even outside of regular paid work) seems like a great way to give yourself more lifelines if normal work goes south or if you simply need the supplemental income. Additional skills not only give options for more income, they ideally result in hiring out less work, which is in some ways can be as good as or better than cash (i.e. more tax efficient).

We can't control the market, but we can strive to control our spending and how much we learn and work.

[Parkinglotracer]

I have no idea if it is different this time. I’d invest in my personal skills, capital, education AND live beneath my means and invest - that is all you can do. You can’t control the rest. Learn a skill that people will pay you to do.

Replying to say this is a great response. We've long been on a mission to hustle to accelerate retirement (something that to me still seems challenging at best), which can be a total chore, but increasingly with age I recognize and appreciate the value of marketable skills. You find this very quickly when you need to hire a trade and you look at the bill that follows.

We both have our career skills (specialized bachelor's, master's), but have also continued to manage a cash flow positive rental property, seasonal Airbnb spaces, and we use our spare time to nurture our own small agriculture business as a long term supplemental source of income and to reduce our own food expenses. Everyone's case is different, but the advice to grind on multiple skills (even outside of regular paid work) seems like a great way to give yourself more lifelines if normal work goes south or if you simply need the supplemental income. Additional skills not only give options for more income, they ideally result in hiring out less work, which is in some ways can be as good as or better than cash (i.e. more tax efficient).

We can't control the market, but we can strive to control our spending and how much we learn and work.

I try to do the same - good luck!

[freyj6]

Just found this. I think it provides some perspective:

"The worst start to a year was 1932. It was down about 40%, We’re down about 22%. Since 1871 the median bear market decline is 38%, and the median time period is 24 months, or two years."

That said, averages can hide a lot.

[protagonist]

My rules about "Is this time different?"
1. I have heard it many times in the past. About the stock market, and lots of other complex phenomena.
2. It might be different. It might not be. Nobody knows. That is the nature of "the future".

[strummer6969]

I wasn't investing during the dot com bubble but in hindsight every single past bear market/correction was a buying opportunity. When you're in one I imagine that it always feels like a big risk.

[HomerJ]

I wasn't investing during the dot com bubble but in hindsight every single past bear market/correction was a buying opportunity. When you're in one I imagine that it always feels like a big risk.

Well, it feels like a risk, because it is a risk.

So far, the stock market has always bounced back to new highs.

So far.

Nothing is guaranteed.

Even though I think the chances the stock market will bounce back are in the 95% range, heck could be 99% range, it's not 100%.

So that's why I had bonds\cash even during accumulation years. And that's why I will have them near and in retirement.

[strummer6969]

I wasn't investing during the dot com bubble but in hindsight every single past bear market/correction was a buying opportunity. When you're in one I imagine that it always feels like a big risk.

Well, it feels like a risk, because it is a risk.

So far, the stock market has always bounced back to new highs.

So far.

Nothing is guaranteed.

Even though I think the chances the stock market will bounce back are in the 95% range, heck could be 99% range, it's not 100%.

So that's why I had bonds\cash even during accumulation years. And that's why I will have them near and in retirement.

For sure. It's always a risk. Every dollar you invest is a risk. Whether you invested that dollar now or 2 years ago, it's at risk. Risks are magnified in a bear market. They're hidden in a bull market.

[firebirdparts]

By the way, 50-50 gold and stocks has been discussed somewhere recently and it is way better for the past 20 years than any of the others, with a 9.77% CAGR for that time period:

Again, a very specific focus on a start date is highly suspect to me. I guess you feel it proves something?

50/50 gold/stocks has very good results for 5, 10, 15, and 20 years from the present, those timeframes picked more or less arbitrarily without trying to time anything. I didn't try any others but have no reason to believe those are the only good timeframes.

80/20 gold/stocks is pretty good too by backtesting, better than my current allocation on all those timeframes. I may shift to that after looking at the results on portfoliovisualizer.

Gold's high. Your endpoints are all the same, when it's high. This is the same problem we had with long bonds up to 2020. They'd been killing it forever. Fundamentally, you have to recognize that when they drop from 20% to Zero, they don't continue on to -20%. Anybody could say "they've been killing it for 40 years, you don't know anything" but that doesn't really make it happen.

If you think gold will go even higher, then you are welcome to act on that. But it's really not the same thing as all the other asset classes in my opinion. Gold is just in a class by itself.

[technovelist]

By the way, 50-50 gold and stocks has been discussed somewhere recently and it is way better for the past 20 years than any of the others, with a 9.77% CAGR for that time period:

Again, a very specific focus on a start date is highly suspect to me. I guess you feel it proves something?

50/50 gold/stocks has very good results for 5, 10, 15, and 20 years from the present, those timeframes picked more or less arbitrarily without trying to time anything. I didn't try any others but have no reason to believe those are the only good timeframes.

80/20 gold/stocks is pretty good too by backtesting, better than my current allocation on all those timeframes. I may shift to that after looking at the results on portfoliovisualizer.

Gold's high. Your endpoints are all the same, when it's high. This is the same problem we had with long bonds up to 2020. They'd been killing it forever. Fundamentally, you have to recognize that when they drop from 20% to Zero, they don't continue on to -20%. Anybody could say "they've been killing it for 40 years, you don't know anything" but that doesn't really make it happen.

If you think gold will go even higher, then you are welcome to act on that. But it's really not the same thing as all the other asset classes in my opinion. Gold is just in a class by itself.

Agreed.

[stocknoob4111]

15 months in now and the end does not seem anywhere in sight. This drawdown looks more and more like a 30+ month cycle more analogous to 2000. Except with the lost decade of 2000-2013 inflation was much much lower, so if we have a similar phase but with our current inflation we could see 20 years of zero instead of the 13 years we saw at the turn of the century - I hope not but it isn't looking good.

[exodusNH]

15 months in now and the end does not seem anywhere in sight. This drawdown looks more and more like a 30+ month cycle more analogous to 2000. Except with the lost decade of 2000-2013 inflation was much much lower, so if we have a similar phase but with our current inflation we could see 20 years of zero instead of the 13 years we saw at the turn of the century - I hope not but it isn't looking good.

Maybe. No one knows.

With the shortening of supply chains, we may have a lot of industrial build out in the US.

[Leesbro63]

What's different this time is that, for my entire adult lifetime (I'm 63), almost every crisis was resolved by borrowing more. Now we've hit the wall and cannot borrow substantially more. I don't think. Certainly it will be tougher.

[Logan Roy]

It feels different – and I think the reason is a) we've got much more data and analysis, so there's potential to navigate economic challenges with more precision.. And b) it feels like we've been far more irresponsible with monetary policy, and a major financial crisis wouldn't be a surprise.. c) I think investors are far more informed these days, and there won't be the same kind of panic in stocks.. Afaik, a lot of retail money's been on the sidelines through this bull market, so I feel there's a calmness in markets, considering.

I don't think sitting this out has been much of an option, with inflation potentially causing more damage than anything else. So I think being mostly-fully-invested, and All Weather, has been the sidelines so far. Defensive equities, gold and TIPS don't worry me a great deal, and I feel better about them together than I do cash.

[rockstar]

Of course, this time is different. Every time the market drops the cause is slightly different. This time we have high inflation and super low unemployment. The last time this happened I was watching the A Team on TV and in grade school.

At the end of the day, Buffett is right. Keep piling money into the S&P 500 and by time you retire you should be good. Ignore the talking heads.

If you're afraid you're going to sell, then hold a large enough emergency fund that you can pull money from. I like a combination of checking, I Bonds, and t bills. Like the banks, you don't want to have a lot of cash tied up in long duration assets when you need to suddenly pull money out for an emergency. Stay short term with possible immediate cash needs and assume your best case is keeping up with inflation pretax.

[L84SUPR]

The early 90s were butal with a recession that dragged out due to multiple military base closures. Once we got out of debt I viewed recessions as buying opportunities and when I took a position with the federal government my job was pretty recession proof. What is different this time is I am 9 months from retirement and have recession-proofed my bridging fund with 7X in G Fund.

Here is an interesting paper about economic context and withdrawal rates. The bottom line is if you catch a bull market near retirement you will likely need to use a lower withdrawal rate. Conversely, if you hit a bear market near retirement you can likely use a higher withdrawal rate.

https://www.kitces.com/blog/retirement- ... unication/

[enad]

Each of the last 7 have been different and no need to think this one will be the same as any in the past. Sit back and enjoy the ride

[Kal1981]

From a historical perspective, every bear market, people have said this time it’s different. And every time, the market recovers.

[Logan Roy]

Obviously someone has to drag out the Japanese stock market. At the time, the 2nd largest market in the world. Inflation-adjusted from 1970-2017. Nominal drawdown of 80% over 20 years (1990-2009). And not exactly a third-world country – visiting Japan and using the public transport, it would be returning to San Francisco that <fill in the blanks>.

And the worry is that Japan's simply ahead of the curve in our current long-term debt cycle. Which is one reason I hold infrastructure and private equity, TIPS, gold, etc. I avoid anything worryingly overvalued (Treasuries since 2014). I think what Japan demonstrates is that there's a lot of chaos to contend with, and no guarantee markets bounce back (although they did in Japan, with decades of false starts), and it's not clear how much firepower the Fed has now, with rates where they are, the risk of really amping up inflation.

[rockstar]

Obviously someone has to drag out the Japanese stock market. At the time, the 2nd largest market in the world. Inflation-adjusted from 1970-2017. Nominal drawdown of 80% over 20 years (1990-2009). And not exactly a third-world country – visiting Japan and using the public transport, it would be returning to San Francisco that <fill in the blanks>.

And the worry is that Japan's simply ahead of the curve in our current long-term debt cycle. Which is one reason I hold infrastructure and private equity, TIPS, gold, etc. I avoid anything worryingly overvalued (Treasuries since 2014). I think what Japan demonstrates is that there's a lot of chaos to contend with, and no guarantee markets bounce back (although they did in Japan, with decades of false starts), and it's not clear how much firepower the Fed has now, with rates where they are, the risk of really amping up inflation.

Not worried about the US becoming like Japan as long as our population continues to grow.

[Toons]

Age 72
Dow was 860 when I started investing
The more things change
The more they stay the same when it comes to the markets

[Toons]

Age 72
Dow was 860 when I started investing
The more things change
The more they stay the same when it comes to the markets

[Blister]

In case no one else has posted this: Mark Twain once said that “History never repeats itself, but it does often rhyme.”

[er999]

Probably the main difference is loss in bond value -- otherwise it's not a surprise that stocks go down (sometimes a lot) from time to time. Also the drop isn't too bad if you look at it over a 3 or 5 year period. VTI 2/14/20 171.70, 195.19 3/17/23, that's still up 13.6% over ~ 3 years. If you look at it from the covid low 3/20/20 115.90 up 68%. If you have bought every 2 weekly or every monthly like most savers do over the past 5 years, you're doing well.

[watchnerd]

15 months in now and the end does not seem anywhere in sight. This drawdown looks more and more like a 30+ month cycle more analogous to 2000. Except with the lost decade of 2000-2013 inflation was much much lower, so if we have a similar phase but with our current inflation we could see 20 years of zero instead of the 13 years we saw at the turn of the century - I hope not but it isn't looking good.

Yeah, although I could also see a simultaneous unwinding of the financial economy but a reinvigorating of the real economy

[Leesbro63]

Age 72
Dow was 860 when I started investing
The more things change
The more they stay the same when it comes to the markets

But 40 or 50 years ago when you started investing, the debt to GDP wasn’t 130% like it is now. There’s no more wiggle room to borrow out of the next crisis(es) like we’ve done for 40 years.

[Phyneas]

Age 72
Dow was 860 when I started investing
The more things change
The more they stay the same when it comes to the markets

But 40 or 50 years ago when you started investing, the debt to GDP wasn’t 130% like it is now. There’s no more wiggle room to borrow out of the next crisis(es) like we’ve done for 40 years.

US debt-to-GDP ratio was higher at the end of WW2, though I won't say that the conditions otherwise are identical, but it isn't entirely unprecedented.

[Leesbro63]

Age 72
Dow was 860 when I started investing
The more things change
The more they stay the same when it comes to the markets

But 40 or 50 years ago when you started investing, the debt to GDP wasn’t 130% like it is now. There’s no more wiggle room to borrow out of the next crisis(es) like we’ve done for 40 years.

US debt-to-GDP ratio was higher at the end of WW2, though I won't say that the conditions otherwise are identical, but it isn't entirely unprecedented.

Totally different. A temporary emergency that ended with the USA the only big economy left to rebuild the rest of the bombed out world. And huge new demand here as the baby boom began. Now those same Boomers are increasingly collecting benefits, adding to debt, with only 2 workers per SS and Medicare collecting Boomer retiree.

[z3r0c00l]

Totally different. A temporary emergency that ended with the USA the only big economy left to rebuild the rest of the bombed out world. And huge new demand here as the baby boom began. Now those same Boomers are increasingly collecting benefits, adding to debt, with only 2 workers per SS and Medicare collecting Boomer retiree.

Right, the big difference is this time I have no confidence we will ever pay down the debt.

[Phyneas]

Totally different. A temporary emergency that ended with the USA the only big economy left to rebuild the rest of the bombed out world. And huge new demand here as the baby boom began. Now those same Boomers are increasingly collecting benefits, adding to debt, with only 2 workers per SS and Medicare collecting Boomer retiree.

Right, the big difference is this time I have no confidence we will ever pay down the debt.

Aren't most other (developed) countries in similar straits though? When Japan went under, people could put their money in the US or in other places. If there are no alternatives, what evidence is there to suggest that the charade can't go on forever?

[z3r0c00l]

Totally different. A temporary emergency that ended with the USA the only big economy left to rebuild the rest of the bombed out world. And huge new demand here as the baby boom began. Now those same Boomers are increasingly collecting benefits, adding to debt, with only 2 workers per SS and Medicare collecting Boomer retiree.

Right, the big difference is this time I have no confidence we will ever pay down the debt.

Aren't most other (developed) countries in similar straits though? When Japan went under, people could put their money in the US or in other places. If there are no alternatives, what evidence is there to suggest that the charade can't go on forever?

I won't say debt is a problem per se, people and organizations actually need bonds at this point. Debt is one of the key engines of the modern economy. But can it continue forever? No, I don't think so, because of how compounding interest works. Eventually, and not too far from today, the interest on the debt will far outstrip our ability to pay it off. At that point the debt goes to astronomical levels. Either we print more dollars to pay it off or default when we can't. Those would be harmful to the economy to say the least. A person making $100,000 a year can survive $100,000 in debt. But $1 million? Unlikely. Our best hope is that tax revenue goes up and we inflate away some of the debt while spending less all at once. Most people seem politically connected to some of these ideas but not others, I think we have to do all of the above.

[Logan Roy]

Obviously someone has to drag out the Japanese stock market. At the time, the 2nd largest market in the world. Inflation-adjusted from 1970-2017. Nominal drawdown of 80% over 20 years (1990-2009). And not exactly a third-world country – visiting Japan and using the public transport, it would be returning to San Francisco that <fill in the blanks>.

And the worry is that Japan's simply ahead of the curve in our current long-term debt cycle. Which is one reason I hold infrastructure and private equity, TIPS, gold, etc. I avoid anything worryingly overvalued (Treasuries since 2014). I think what Japan demonstrates is that there's a lot of chaos to contend with, and no guarantee markets bounce back (although they did in Japan, with decades of false starts), and it's not clear how much firepower the Fed has now, with rates where they are, the risk of really amping up inflation.

Not worried about the US becoming like Japan as long as our population continues to grow.

US population growth is at a historic low of just over 0.1%, and will be negative within a few years on the current trend (if the current low recovers post-covid). But I don't think that really explains Japan's stagnation, nor does the type of population growth keeping the US above water necessarily bolster the economy. There seems to me a big disconnect between the idea of the US as a machine of perpetual growth and innovation, and the reality of many US cities and colleges these days.

Japan's interesting because there's very little homelessness, things tend to run extremely well, very high levels of education, leading the world in automation.. That markets paint such a different picture has quite a bit to do with multiples expansion, big tech and the dollar – all three of which are likely to mean revert at some point. Then there's the LT debt cycle, and probably a hard limit to growth so long as we keep kicking the can down the road. If we need <1% rates to keep the system going, we should probably expect 1% inflation and 1% growth to follow.

[Phyneas]

Obviously someone has to drag out the Japanese stock market. At the time, the 2nd largest market in the world. Inflation-adjusted from 1970-2017. Nominal drawdown of 80% over 20 years (1990-2009). And not exactly a third-world country – visiting Japan and using the public transport, it would be returning to San Francisco that <fill in the blanks>.

And the worry is that Japan's simply ahead of the curve in our current long-term debt cycle. Which is one reason I hold infrastructure and private equity, TIPS, gold, etc. I avoid anything worryingly overvalued (Treasuries since 2014). I think what Japan demonstrates is that there's a lot of chaos to contend with, and no guarantee markets bounce back (although they did in Japan, with decades of false starts), and it's not clear how much firepower the Fed has now, with rates where they are, the risk of really amping up inflation.

Not worried about the US becoming like Japan as long as our population continues to grow.

US population growth is at a historic low of just over 0.1%, and will be negative within a few years on the current trend (if the current low recovers post-covid). But I don't think that really explains Japan's stagnation, nor does the type of population growth keeping the US above water necessarily bolster the economy. There seems to me a big disconnect between the idea of the US as a machine of perpetual growth and innovation, and the reality of many US cities and colleges these days.

Japan's interesting because there's very little homelessness, things tend to run extremely well, very high levels of education, leading the world in automation.. That markets paint such a different picture has quite a bit to do with multiples expansion, big tech and the dollar – all three of which are likely to mean revert at some point. Then there's the LT debt cycle, and probably a hard limit to growth so long as we keep kicking the can down the road. If we need <1% rates to keep the system going, we should probably expect 1% inflation and 1% growth to follow.

I don't think a world of perpetual low growth is likely based on human behavior though. Unless interest rates go negative, that means the end of the equity risk premium, and with it, the stock markets in toto. Who is going to risk a 50%+ drop just to break even with inflation, you might as well buy gold or land or toilet paper at that point. And if it didn't wipe out the stock market, it would cause such a decline in stock values as that they'd be attractive again relative to inflation and bonds anyway, unless we're talking about the end of any kind of value-and-risk arbitrage mechanism arising artificially out of economic conditions, or rules imposed in response to them, and is something as hopeless as that really worth worrying about?

[Logan Roy]

Obviously someone has to drag out the Japanese stock market. At the time, the 2nd largest market in the world. Inflation-adjusted from 1970-2017. Nominal drawdown of 80% over 20 years (1990-2009). And not exactly a third-world country – visiting Japan and using the public transport, it would be returning to San Francisco that <fill in the blanks>.

And the worry is that Japan's simply ahead of the curve in our current long-term debt cycle. Which is one reason I hold infrastructure and private equity, TIPS, gold, etc. I avoid anything worryingly overvalued (Treasuries since 2014). I think what Japan demonstrates is that there's a lot of chaos to contend with, and no guarantee markets bounce back (although they did in Japan, with decades of false starts), and it's not clear how much firepower the Fed has now, with rates where they are, the risk of really amping up inflation.

Not worried about the US becoming like Japan as long as our population continues to grow.

US population growth is at a historic low of just over 0.1%, and will be negative within a few years on the current trend (if the current low recovers post-covid). But I don't think that really explains Japan's stagnation, nor does the type of population growth keeping the US above water necessarily bolster the economy. There seems to me a big disconnect between the idea of the US as a machine of perpetual growth and innovation, and the reality of many US cities and colleges these days.

Japan's interesting because there's very little homelessness, things tend to run extremely well, very high levels of education, leading the world in automation.. That markets paint such a different picture has quite a bit to do with multiples expansion, big tech and the dollar – all three of which are likely to mean revert at some point. Then there's the LT debt cycle, and probably a hard limit to growth so long as we keep kicking the can down the road. If we need <1% rates to keep the system going, we should probably expect 1% inflation and 1% growth to follow.

I don't think a world of perpetual low growth is likely based on human behavior though. Unless interest rates go negative, that means the end of the equity risk premium, and with it, the stock markets in toto. Who is going to risk a 50%+ drop just to break even with inflation, you might as well buy gold or land or toilet paper at that point. And if it didn't wipe out the stock market, it would cause such a decline in stock values as that they'd be attractive again relative to inflation and bonds anyway, unless we're talking about the end of any kind of value-and-risk arbitrage mechanism arising artificially out of economic conditions, or rules imposed in response to them, and is something as hopeless as that really worth worrying about?

Absolutely. If everything's at 1%, we should expect PE ratios of 100, and perhaps 1% real from stocks (for taking the extra risk).. When it's the only game in town, etc. And if there are still 50% declines, that'll be where there's at least some scope to grow wealth (for the half of the market buying at that point).

I think that's absolutely inevitable. It also ties in with Machine Learning doing most of the capital allocation in the future, because it doesn't need an equity risk premium. It doesn't necessarily need competition. Asset pricing could be handled by a single computer or distributed algorithm. It's also the inevitable destination of capitalism: perfect competition – where no industry makes net profits.

The wildcard for me is if inflation refuses to play by this '1% everything' rule. If we get inflation volatility every time the system nears perfect stability, then it'll necessitate rates coming up, and risk premiums climbing again.. But I'd still bet we get to 1% everything; just over a series of smaller and smaller bumps. The stabilising of inflation will be a sign of true market efficiency – once human behaviour's been fully arbitraged by algorithms, etc. It makes much more sense to me. We can't all sit around and expect to get rich from owning stocks forever.

[watchnerd]

I don't think a world of perpetual low growth is likely based on human behavior though. Unless interest rates go negative, that means the end of the equity risk premium, and with it, the stock markets in toto. Who is going to risk a 50%+ drop just to break even with inflation, you might as well buy gold or land or toilet paper at that point. And if it didn't wipe out the stock market, it would cause such a decline in stock values as that they'd be attractive again relative to inflation and bonds anyway, unless we're talking about the end of any kind of value-and-risk arbitrage mechanism arising artificially out of economic conditions, or rules imposed in response to them, and is something as hopeless as that really worth worrying about?

Vanguard's 2023 Outlook is certainly projecting a pretty narrow equity risk premium for US equities over the next decade:

Although rising interest rates have created near-term pain for investors, higher starting rates have raised our return expectations for both U.S. and international bonds, which we now expect to return roughly 4%–5% over the next decade.

....

From a U.S. dollar investor’s perspective, our Vanguard Capital Markets Model projects higher 10-year annualized returns for non-U.S. developed markets (7.2%–9.2%) and emerging markets (7%–9%) than for U.S. markets (4.7%–6.7%).

That's only a 0.7% - 1.7% equity risk premium for US stocks vs bonds.

[Toons]

Age 72
Dow was 860 when I started investing
The more things change
The more they stay the same when it comes to the markets

But 40 or 50 years ago when you started investing, the debt to GDP wasn’t 130% like it is now. There’s no more wiggle room to borrow out of the next crisis(es) like we’ve done for 40 years.

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