Jul

22

The recent paper from BofA/Merrill Lynch on long term returns had several equity market charts which cast doubt on inevitable long-term drift. Given what happened in WWII the charts are as expected in Japan and Germany, but look at France and UK (Picture Guide to Financial Markets Since 1800). [Ed.: sorry, link no longer works].

There are many decade flat to down periods (in USD).

One keeps returning to the question of whether the long-term updrift of US stock market would have occurred had we not been on the winning side of two world wars, one not hot war, and of course the resulting transformation to the first world leader.


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2 Comments so far

  1. Pacific SW on July 23, 2012 6:52 am

    I’ve been pondering this for a while, as this question is bigger than the future of the euro to my mind, and I hope the Chair and the esteemed contributors will chime in.

    My hypothesis is that the entrepreneurs who required 10% p.a. for 200 years have been overwhelmed by:
    -the mandatory pension contributions (outside US) into equities, and
    -the trillions printed by gubernatorials.

    The system is up to its gills in liquidity, hence the odds on the board can’t adjust anymore, so it may well be the drift is history.

    what would bacon do?

  2. Ed on July 23, 2012 8:28 pm

    Why is it the slightest bit reasonable to suggest that the returns on capital can keep growing exponentially? The entire notion of a drift that “anyone” can profit from is suspect, regardless of what 100 year of data suggests.

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