(BTW: That Lehman post going up just now looks stupid, I know. I wrote it on Sunday, but it only got posted today because I forgot to hit ‘publish’ on Sunday. I only hit ‘save’. Oops.)
So obviously, the recent post-9/11 boom is over. But that’s not the question. I’m wondering if the recent post-80′s boom is over. Are we in for another 20 years of doldrums? People always say, in the long run the market goes up. But it really depends on which long run you are talking about.
Since the 80′s, there’s been a huge boom. the Dow 750 or so in 1980 to a peak of 11,500 in 2000.
1980-2000:
But if you look at where the market’s been the last ten years, its been flat. We’re basically back where we were in 1999. We may well hit the 2003 low and of about 800 and at that point we’d be back in about 1997. So completely flat for the last decade, with a lot of volatility. (With me exiting the market at its low point in 2003 and only reentering in early ’05. I am clearly the master of market timing.)
2000-Present:
There is always the possibility that the situation we are in is like the 1930s, which means that we won’t see stock prices recover for about 25 years.
1920-1940:
1940-1960:
Hopefully that is not the case. More likely however, is that rather than us being in a minor correction, the market going forward may be something like the 60s through the 80s:
1960-1980:
So basically we’re looking at historically, there have been 20-25 year periods in which the market has really not performed. Over 40 year horizons, the market has performed ok. But this is not a very large statistical sample. Over the last 100 years, there have only been so many 40 year horizons. Something Really Bad could happen and we’re not looking at such a rosy future.
But even though we have a limited sample size, my gut tells me that given the fact that things have been bad for the last decade and that both presidential candidates are complete idiots when it comes to proper economic policy, we are looking at another ten years of market doldrums.
Now this is a bad thing, clearly, and the employment situation on Wall Street right now is such that getting a job in math finance will be hard, but another decade of market doldrums actually makes quants more in demand. It will not be easy to make money in the market for at least the next ten years. You can’t just throw your money into an index and expect 10% annually plus compounding will lead to a cushy retirement twenty years down the road. So that’s at least my attempt to spin this current dismal situation somewhat optimistically.
We shall see.
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