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according to mark hulbert 25-30 years to recover is not true. that would not be comparing things evenly.
" Three reasons, according to Hulbert:
•Deflation: By 1936, the Consumer Price Index was 18% lower than it was when the market crashed in 1929. So the amount of purchasing power investors gained in the recovery when the market turned up by, say, a dollar was greater than the amount of purchasing power they lost for each dollar of declines in the preceding bear market.
•Dividends: When the market bottomed in 1932, the dividend yield of the overall market was almost 14%, according to Yale Professor Robert Shiller’s data. Those payouts aren’t included in the Dow’s price levels.
•The Dow Is Different Than the Market: While it often gives a good idea of the broader market’s returns, the Dow is made up of a small number of stocks and often doesn’t include certain stocks that are very relevant to average investors. IBM — a very popular and successful stock in the post-Depression era — was dropped from the Dow in 1939, Hulbert notes, so the Dow didn’t benefit from its big 1940s gains, even though many investors did .
“So when did the overall stock market really make it back to its pre-crash peak?” Hulbert asks. “Just four years and five months after its mid-1932 low, according to data provided … by Ibbotson Associates, a division of Morningstar. That seems remarkably fast, given that the stock market lost more than 80 percent of its value from its 1929 high to its mid-1932 low.”
What people forget is that the stock market is a REACTIONARY system. It reacts to human movement, population moves, trends in consumer spending, etc. The only thing that could possibly happen to make it end is to make a significant portion of the human population to stop (read: die). But even then, after a few years, it would come back. It's economics, and economics exist wherever humans exist, period.
The stock market has the consumption of 15 billion people baked-in already. Technology/efficiency will continue to outpace human population growth from now on. Unless Big Business capitulates to mega hiring (unproductive driftwood jobs), there’s no tangible profits that the stock market can base their projections IMO.
As for the envisioned appearance of the consumer-investor: the consumption—via the stock market wealth effect—is nowhere to be found. The higher stocks go the more worried investors’ get.
Actually it took three decades for the stock market to reach its 1929 high.
If you had kept your money in the market from 1929, you would have first seen three decades of no gains whatever. Is a three decade flat investment, a good investment?
If you had added funds over time to it, yes, it would have been a fabulous investment. Thing is at that time most people had zero faith in it because it was new, the gold standard was still in place until the 1970s, and thus the nature of money was different. So a lot of people didn't do it. A lot, however, did. Many got back into the market after the war because they saw that American dominance of the world of free markets and finance would continue. If they had invested some money over time, they would have come out way ahead.
I would agree that though you'd have to be insane to keep doing that for 30 years. However, there is no correlation of that time period to today's world. Farming practices have become globalized, thus distributing the risk and reducing the overall chance of another dust bowl decimating crops (which back in the 20s would much more damaging to the economy since most Americans were rural).
Also depends on how you look at it. If you had bought when everyone else was panicking, say even a year after black Tuesday, you would have come out wildly wealthy even during the war into the 50s.
You also forget that most companies had dividends and paid them out more instead of boosting share prices. So charts showing a 25-30 year drought in the stock market are pretty misleading.
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Or how about as China slowly gains dominance the world economy, what do you think will happen to the American stock market, and what do you think will happen to the Chinese stock market?
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Personally I think China is a paper dragon. They've got so many problems ranging from demographics, pollution to the point of no return, catastrophic finance system that can only be described as a massive Ponzi scheme of boosting GDP through infrastructure projects that go nowhere or do not add value, and increasing costs but no means of shifting to a consumer based economy without massive political and social upheaval. Their companies also make no bones about setting up false accounts, trying to lure foreign investment, and then cutting and running with the money. So many US corporations are abandoning their Chinese investments now, it's not funny.
But the rest of the world, sure. But you're forgetting that you can still get handsome returns in today's markets even just betting on American conglomerates. Look, there's no company with a market cap of more than say 1 billion that isn't in the international markets. There just isn't. Even most mid-caps have international contracts. The internet has enabled even some small cap companies to compete globally.
So even if you assume the US economy remains in the toilet with low wages failing to keep up with inflation and inverse proportional relationships between rising technology adoption with skilled worker demand, if you have a mix of international, US conglomerates, and mid cap, you will still come out ahead. While globalization has its share of bad trends, the good news is for investors the risks are dramatically cut as the theory of world development and means that regions which once were backwaters will be come lucrative targets for investment; see Burma, Vietnam, and other former regions which were closed to investment. Market liberalization has caught on in a region of the world with 1 billion people, not counting India.
Or how about as China slowly gains dominance the world economy, what do you think will happen to the American stock market, and what do you think will happen to the Chinese stock market?
The European Union has had a higher GDP than the United States for quite some time now. What effect has that had on stock markets?
The stock market has the consumption of 15 billion people baked-in already. Technology/efficiency will continue to outpace human population growth from now on. Unless Big Business capitulates to mega hiring (unproductive driftwood jobs), there’s no tangible profits that the stock market can base their projections IMO.
As for the envisioned appearance of the consumer-investor: the consumption—via the stock market wealth effect—is nowhere to be found. The higher stocks go the more worried investors’ get.
I'm skeptical about that 15 billion people figure. I highly doubt wherever that came from took into account exponentially rising consumption rates of the world's developing countries.
For instance, I bet they figured the average person was having a hard time finding food / had subsistence, lived on $500 a day, etc. The reality is for the majority of the former third world, people are getting OBESE.
That's right, fatties have become a worldwide problem.
So, that 15 billion people figure is probably skewed towards an average human development index that is woefully out of date or not looking at the big picture.
Now, before I sound too much like a bull, which I freely admit I am (long term anyway), will I admit that there are risks?
Yes, of course. There's always risks.
China could dredge up a war with the rest of SE Asia as a means of boosting its economy. The West has been doing it for 100 years, after a fashion. Why not expand the death-industry overseas? This would wreck the world economy for a while because I would suspect that the world would pull out of China, globalization would reverse for a bit, and trade protections would go up. But even then, defense contractors would be a wise investment. Hey, if the Reaper is out already, why not bet on the companies that sharpen his blade (so long as you're on the winning side)?
There could be asteroids, solar flares, or a neutron blast from a pulsar.
In reality I think those are the only risks to the market.
Historically, if you looked at pandemics, world wars, massive industrial or crop failures, or other such disasters, it's but a drop in the bucket in terms of investing, and the world development actually incraesed in the periods immediately following.
Also depends on how you look at it. If you had bought when everyone else was panicking, say even a year after black Tuesday, you would have come out wildly wealthy even during the war into the 50s.
While I'm also in agreement with Mr. Mathjak's points in post #11, it needs to be remembered that the markets went through all sorts of gyrations between the Crash of 1929 and the emerging stability of the Fifties and early Sixties, and almost all of them had political overtones.
The market crashed in 1929, but Main Street didn't feel too much of the impact until two years later. As writer George Papashvily, a voice for later-generation white-ethnic immigrants observed, the real meltdown didn't make itself felt until the fall of 1931. And by that time, Papashvily was working in Detroit -- a capital-goods town that should have been affected early and harshly.
The invalidation of the National Recovery Act in the spring of 1935, by which time the economy had already bottomed out and tentative expansion was stirring in some areas, was nipped in the bud by some very agressive anti-free-enterprise posturing by members of Roosevelt's innner circle which, in turn, was heavily weighted toward the concerns of the emerging Eastern Liberal Establishment. It may have been the first time that an advocacy for the Managerial State was heard from within the financial community; regrettably, it looks like we'll not witness the last anytime soon. 1941 was a very poor year for the markets as the realities of the post-New Deal world set in.
And finally, as the elections of 1935 and 1940 demonstrated to all, while Roosevelt (and later, Truman and Humphrey) were quick to recognize (and tone down as soon as the elections were over), the class-warfare rhetoric continues to play well with a mindset that lies near the center of the Democratic coalition. There will continue to be short-term and special-situation opportunities, and likely some emerging growth, but at a slower (and possibly riskier) pace. And a media cultute that continues to condition the public to believe that we were all dancing the Charleston in 1929, and standing in a bread line two weeks later is doing a disservice to us all.
Last edited by 2nd trick op; 02-03-2013 at 09:35 PM..
The European Union has had a higher GDP than the United States for quite some time now. What effect has that had on stock markets?
Well, there's a lot of interesting situations going on in the world. Most of the EU countries are bankrupt, Germany is propping up a lot of them.
China, as someone else pointed out, has its share of problems which make it difficult to say how successful it will be as an emerging economic power. On the other hand, its sheer numbers alone could make it so those problems have minimal effect.
Here's another thing to think about, and I'm just playing devil's advocate: in the 1800s, the US had a lot of untapped natural resources. The 1900s saw the full expansion of the country into all its available resources and the use of them. This of course is a huge force that drives stock markets up ... ("the rising tide".) .... or at least American companies in the 1900s, which was the bulk of the stock market....
in the 21st century, we are in a different situation. Ignoring unforeseen, "suprise" discoveries (like some huge oil deposit), America as a country can't look forward to any untapped resources. If the stock market is going to "keep rising", it naturally follows that there will have to be more of an influence from foreign business.
So, is "international business" adequately represented on the American stock market, and with excellent prospects for the future?
I'm skeptical about that 15 billion people figure. I highly doubt wherever that came from took into account exponentially rising consumption rates of the world's developing countries.
The 15 billion people was opinionated hyperbole—sorry about that. This is what I mean: Today is 2-5-2013, the Stock Market thinks today is 2-5-2023+.
IMO, until the delusional stock market understands that today is 2-5-2013, their prosperity will be short-lived, hollow & decrepit.
Last edited by DSOs; 02-05-2013 at 03:46 PM..
Reason: corrected date 2-5-2013
I think stocks are still a good long term investment but maybe not as good as they used to be. Economically, the US seems to be a country in decline. We seemed to be slipping lower and lower compared to other countries in terms of GNP, quality of life and other measures and we seem content to elect governments that will spread that decline more evenly among the population, but not reverse the trend in the increasingly competitive world.
I think so too,equities long term will produce gains but i think they will have long term averages lower then the past.
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Clawed-forward consumption
