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These are all great points. I wonder if this 16-year period is a blip or if it represents the new normal in an aging world where innovation is increasingly difficult and human population growth is slowing. One thing that puzzles me is how emerging markets are underperforming, when they should be outperforming due to more favorable demographics (like the U.S in the early 20th century).
Indeed, the systematic underperformance of emerging-markets is troublesome. Why are some of the most vigorous and industrious societies seeing their stock markets stagnate, if not outright decline? Why is the US dollar so doggedly strong? If demographics correlated closely with long-term market conditions, we'd see markets in Latin America and especially the Middle East burgeon. But that's not been the case. Then again, maybe the strength of the US dollar correlates to comparatively better demographics in the US, than in Europe or Japan?
Causality, correlation, or coincidence?
It's a reliable adage, that every successive trend is viewed as the new-normal and as departure from historical pattern... until it is itself supplanted by a newer trend, whereupon the former trend begins to fall into now discernible pattern in history, and we scoff at the fools who'd regarded that trend as unprecedented novelty. This is a comforting thought, in taking in stride the past 16 years. Is it correct? Perhaps. I hope so.
Indeed, the systematic underperformance of emerging-markets is troublesome. Why are some of the most vigorous and industrious societies seeing their stock markets stagnate, if not outright decline? Why is the US dollar so doggedly strong? If demographics correlated closely with long-term market conditions, we'd see markets in Latin America and especially the Middle East burgeon. But that's not been the case. Then again, maybe the strength of the US dollar correlates to comparatively better demographics in the US, than in Europe or Japan?
Causality, correlation, or coincidence?
It's a reliable adage, that every successive trend is viewed as the new-normal and as departure from historical pattern... until it is itself supplanted by a newer trend, whereupon the former trend begins to fall into now discernible pattern in history, and we scoff at the fools who'd regarded that trend as unprecedented novelty. This is a comforting thought, in taking in stride the past 16 years. Is it correct? Perhaps. I hope so.
IMO there is no correlation between demographics and the stock market, or at least it is very intermediate. There is a correlation between the growth / decline of the work force and real estate and maybe even interest rates. The labor force grew fastest in the 1970s in he US and this coincided with the peak of inflation and interest rates. For stocks it was a volatile phase but just a breather before the next giant bull market, starting in earnest in 1982 (although the lowest low already was in 1975).
Ever since then our labor force has been growing slower and slower which is reflected in continuously lower interest rates and inflation, but the stock market just keeps on growing regardless. I think it will not be until all the boomer retirement wave is behind us around 2025 that our labor force will grow again meaningfully, but still far away from the growth rates of the 1970s. We'll never see those again.
Important rule of thumb: if someone tries to foretell you the stock market based on demographics run the other way as fast as you can. It's nonsense and may only poison your mind and thinking.
IMO there is no correlation between demographics and the stock market, or at least it is very intermediate. There is a correlation between the growth / decline of the work force and real estate and maybe even interest rates. The labor force grew fastest in the 1970s in he US and this coincided with the peak of inflation and interest rates. For stocks it was a volatile phase but just a breather before the next giant bull market, starting in earnest in 1982 (although the lowest low already was in 1975).
Ever since then our labor force has been growing slower and slower which is reflected in continuously lower interest rates and inflation, but the stock market just keeps on growing regardless. I think it will not be until all the boomer retirement wave is behind us around 2025 that our labor force will grow again meaningfully, but still far away from the growth rates of the 1970s. We'll never see those again.
Important rule of thumb: if someone tries to foretell you the stock market based on demographics run the other way as fast as you can. It's nonsense and may only poison your mind and thinking.
The great narrative of the 1980s and 1990s was the worldwide decline of interest rates, the dominance of market-oriented economic structure (even in authoritarian and/or corrupt governments), burgeoning trade, and meteoric rise of stock markets. It's stupid to bewail the cancellation of defined-benefit pensions, when our 401Ks are growing by 12% year after year after year. It was intoxicating, exhilarating! Every blip, be it the 1987 "crash" or the 1998 "Asian Flu", was followed by resumption of ascendancy. The byword was patience and dogged resiliency.
Was it related to demographics? In much of the Western World, baby-boomers were entering their peak earning years, their peak spending and investment years. Worldwide, countries were finally emerging from 1960s colonial struggles. Resource-poor but labor-rich nations were becoming manufacturing-stalwarts. New financial instruments were being invented, and the much-vaunted Information Technology enabled things heretofore unimaginable.
So, part of it was demographics. Part of it was other stuff. Which dominated? Who knows?
I don't believe that the 21st century will be a mere shadow of the 20th. I don't believe that we're inevitably mired in stagnation, in loss of purchasing-power, in ceaselessly oscillating but not really growing markets, in a fragmented and predatory and desperate world. But it also seems to me that something broke circa 2000. Something went awry, or was no longer sustainable. Assuredly we'll have impressive bull-markets again. But will the ensuing decades see a repeat of the heady days of the 1980s and 1990s? That's hard to believe.
Here's an old dude who doesn't seem too worried about the "ensuing decades"...
In 10 or 20 or 30 years, I think stocks will be a lot higher then they are now. ... A great strategy is just to buy stocks consistently over a lifetime. And not worry too much if they go up or down on any given month or year --- Warren Buffett, 2/29/2016
The late 1980's and 90's were really good because the decades prior were really poor.
Remember low valuations lead to above average returns and high valuations lead to below market returns.
We are at high valuations now
But the first 16 years of this century (considered as a single block of time) have been poor and have done nothing to reduce valuations. How much longer will it take?
the answer is " until corporate profits come up to match
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