[quote=AN]Beating CPI during the 12 years where stock is basically flat and we saw one of the major stock market crash this side of the great depression is pretty impressive to me. Now, how would your number look if you extend it to 20 years instead of 12? Here’s a helpful link for you: http://www.moneychimp.com/features/market_cagr.htm
Based on their calculator, your inflation adjusted return for the S&P over the last 11 years is basically 0. However, if you extend that calculator back another 11 years to 1990, your annualized inflation adjusted return is 5.41%. If you extend that back another 10 years to 1980, your annualized inflation adjusted return would be 7.42%. So, the question is, will we see 20-30 more years of what we saw in the last 11 years, or will we see something like the 80s-90s?
[/quote]
I would bet that we’d continue to see what we have been seeing rather than a repeat of the 80’s and 90’s. The primary reason being that the 80 and 90’s were fueled by a large new group of stock investors (the boomers and their 401Ks). In the generation prior to the boomers maybe 10% of the population owned stocks as the boomers bought stocks through their 401Ks the ownership rate of stocks went up to probably 50%. Again a cycle of exponential growth that came to an end in 2000 or so. Honestly what’s the next driver of growth for stocks. You have all the boomers looking to collect dividends or sell principle and the next generation deeply indebted to college and wanting to buy homes that are still 5x median incomes. Where’s the left over productivity coming from to invest in stocks from the next generation.
I can honestly think of 2 possibilities that could drive our stock market through 1 more exponential growth cycle from these levels. A significant foreign middle class forming and choosing to invest in US based stocks (i.e. a China, Brazil of India middle class that quickly catches up to our standard of living). Or some kind of forced medical savings plan that puts the remaining 50% of the relatively poor into the stock market. Neither seems likely to me so I expect at best a sideways choppy market and at worst a declining market at least inflation adjusted.
My expected scenario would be a significant collapse in the stock market and a significant deleveraging that results in a depression before we see another growth cycle, but I could be wrong about that. Obviously you have a vested interest in it playing out how you’re positioned but really think about what kind of things need to happen for it to play out that way.
Exponential economic growth is going to come from a new cheap energy source (i.e. thorium nuclear, hydrogen fusion) or a population increase. So far we have neither. We have some new expensive energy sources in renewables, and population growth is only slightly positive.
