What's more interesting to me than the ludicrously failed prediction is their reasons for the prediction. They said, all verbatim quotes:A sensible target date for Dow 36,000 is early 2005, but it could be reached much earlier.
They also said, explicitly,
- The truth is that, over the long-term, stocks are no more risky than bonds or Treasury bills, so…
- With this in mind, investors in recent years have begun to act more rationally, bidding up the prices of stocks and driving down the premium they had demanded when they believed stocks were risky, and…
- Soon, prices will rise to where they will be “perfectly reasonable”—around 36,000 on the Dow Jones industrial average.
Well, what happens after that? I don't think the book, which is unrelenting cheerleading for stocks, ever discusses this. But the equity risk premium can only disappear once. The rise to Dow 36,000 would be a one-time event. (Unless of course, it reappears, which would cause the stock market to tank). So presumably once the equity risk premium has disappeared, stocks and bonds would have the same long-term return forever after.The Dow 36,000 theory depends on the risk premium for stocks disappearing.
So it was interesting to me to read one Hannah Erin Lang, in The Wall Street Journal:
The Extra Reward for Owning Stocks Over Bonds Has Disappeared
In other words, in 2010-2024 we got all of the equity risk premium we're ever going to get?The equity risk premium, often defined as the gap between the S&P 500’s earnings yield and that of 10-year Treasurys, turned negative in late December for the first time since 2002 and sat last week at negative 0.15 percentage point.
The metric is based on a calculation of how much stocks yield, which is derived by dividing the stock market’s expected earnings by its price. The earnings yield is then compared with the yield on government debt.
The difference between stock and bond earnings yields shows how much investors are compensated for the additional risk of owning stocks over relatively risk-free government bonds....