Long Term Stuff

[TjamesX]

I thought about posting this in the discussion on DJI, but I think this would be better as more of a general discussion.

I have a personal belief that in general economic growth will be limited over the next decade - mainly due to consumer debt (i may well be wrong).

Below is a chart of the Dow Jones for the last 100 years - I couldn't find a suitable one of the All Ords??. The longer term cycles are reasonably well represented;

1940 - 60 strong growth
1960 - 80 flat
1980 - 2000 strong growth (crash of 87 recovered within a year)
2000 - ???

These periods are determined not really by sharemarket sentiment - they are driven by underlying economics.

My question is - are we heading into a long draw out period similar to 1960 - 1980?????

Two cliches? that have been well served from 1980 - 2000 (even considering 1987 crash);

Its time in the market, not timing the market
Buy and hold - thats not really a cliche

Is their day(decades) in the sun over?

My parents (babyboomers) were at a similar age to me during the 1960 - 1980 period, generational issues??

If anyone has an opinion, please post - I'm thinking on my feet with this stuff (not heavily researched), for the oldies are there similarities to 1960 with 2000??

Note: I don't think this is all doom and gloom, just a movement to a different cycle, money would have been both made and lost 1960-80.

TJ

 

[Fleeta]

What causes a 20 year flat period? War? Terrorism? Natural Disasters? Massive inflation & interest rates?

What impact has technology played in this graph? Hasn't computerisation made the world a more efficient place and enabled this massive growth? Why will these technological advances grind to a halt?

More than 50% of Australians own shares...What was it is 1960...probably <10%...I think the massive influx of money coming into the stock market will continue to drive it.

There was no 9% SGC in 1960...now 9% of everybody's wage is invested for them...and primarily in the stock market. I think this alone will keep the market ticking over. Just my thoughts.

Another factor that may favour the ASX is the implementation of International Financial Reporting Standards next year. This may bring more foreign money into our markets as it enables foreigners to be able to better understand financial reports coming out of Australia.

 

[TjamesX]

What causes a 20 year flat period? War? Terrorism? Natural Disasters? Massive inflation & interest rates?

I am really not sure, I found an article that addresses some of this (see next post). I think the article suggests that while GDP growth was still significant during this period, inflation was also significant, so real GDP was affected. However is does seem as though the market was significantly undervalued at the end of 1970's on PE terms.

More than 50% of Australians own shares...What was it is 1960...probably <10%...I think the massive influx of money coming into the stock market will continue to drive it.

There was no 9% SGC in 1960...now 9% of everybody's wage is invested for them...and primarily in the stock market. I think this alone will keep the market ticking over. Just my thoughts.

This is definitly a large unknown, we have never had a period where mutual funds with OPM have had such a large influence on the market.

I have read Kyosakis book Prophecy which covers some of this stuff. He seems to think that as a result of baby boomers retiring and having access to their super, they will all pull out of the market and cause a crash like no other. I think this is crap.

I would have thought that taking money out of the market via super funds - the same as throwing money at the market via super funds, would cause supply and demand imbalances in the short term. The market is a reflection of what people are willing pay for earnings, the earnings don't really change, just what people are willing to pay for them. When the market is paying a lot for earnings - its time to get out, when they aren't - its proably time to get in IMO. I believe the All ords are about fair value ATM compared to historical PE? - add to this the super fund money looking for a home, we haven't seen the top yet.

Amature Economist
TJ

 

[TjamesX]

I googled '1960 - 70's stock market flat' and came across this pretty intersting article, here's a bit - but the whole article is definitly worth a read;

I have demonstrated in previous chapters that there is little statistical correlation between the performance of the stock market and the performance of the economy. But that is not to say the economy does not matter. In the long run, it not only matters a great deal - it is the driving force for all investments.

I have used the phrase Muddle Through Economy in the preceding 14 chapters to describe my view of what we face in the coming years. By that, I mean an economy which will indeed be growing, but that growth will be below the long term trend. The Muddle Through Economy will be more susceptible to recession, similar to the period from 1969 to 1982. This is an economy which must strive to move forward burdened with the heavy baggage of old problems created in the last century while facing the strong headwinds of new challenges.

Understanding this concept is critical to your recognition of how to invest and plan for the future. Like generals who plan for future battles based upon the last war, if you plan for a future which looks like the 80's and 90's, you will not be happy with the outcome of your investment battles.

This is not a message of gloom and doom. To suggest we will face recessions in our future is not to say the world is not coming to an end. It is simply changing. Successful investors must acknowledge the fact that we face a different set of challenges. I believe this chapter is a realistic assessment of the challenges we face. You can focus on the problems, but that is not productive. It is much better to see them coming and work to avoid their investment consequences by finding better alternatives. There are any number of exciting opportunities available to the prepared and creative mind, as we will see in the remainder of the book.

The whole article http://www.2000wave.com/article.asp?id=mwo053003

All very interesting reading

TJ

 

[DTM]

I googled '1960 - 70's stock market flat' and came across this pretty intersting article, here's a bit - but the whole article is definitly worth a read;



The whole article http://www.2000wave.com/article.asp?id=mwo053003

All very interesting reading

TJ

Nice article TJ

 

[ghotib]

Interesting thoughts, that chime with some random ideas I've been playing with for a while. So just to throw a few out there, in no particular order:

* Assuming that an economic system exists because people need to exchange things in order to live (or to breed, if you want to get right back to biological fundamentals), capitalism as we know it is failing. Its mechanisms for circulating things are weaker than its mechanisms for accumulating them, and it has no mechanisms for addressing needs and wants that can't be expressed in money equivalents.

* Publicly-owned companies are inappropriate for the provision of direct care to people who are, temporarily or for life, outside the mainstream of adult capability in ways that preclude them from real choices. I mean the frail aged, children, some chronically ill people, some disabled people, some acutely ill or injured people.

* There is a direct conflict between economic growth as we've known it and the survival of western civilisation, if not the human race, because to date economic growth has depended on using non-renewable physical resources and on gross differences in workforce power and expectations.

* Not-for-profit and co-operative organisations look like sensible structures for filling a great many economic niches that can't support the profit requirements of public companies.

All of which says I have no idea what's going to happen to stock markets except that it's only a small part of what's going to happen and that all of it will be unexpected.

Cheers,

Ghoti

 

[Fleeta]

Thanks TJ and Ghotib, very interesting reading.

I think you are right TJ, it all comes down to fundamentals...the market won't crash because if you get stocks yielding 10%+ the buyers will come from everywhere and levels will be sustained. I'm just a kid (25), but I reckon that the world is a much more rational place today than it was in the past, mostly because we are better informed...to think that idiots in the 70s believed the world would run out of oil before the year 2000...and they though that flares were cool..and Abba were talented...totally irrational people!

 

[TjamesX]

I'm just a kid (25), but I reckon that the world is a much more rational place today than it was in the past, mostly because we are better informed...to think that idiots in the 70s believed the world would run out of oil before the year 2000...and they though that flares were cool..and Abba were talented...totally irrational people!

25 also, and yes I think I'm a lot smarter than my parents

Except when they throw around pieces of advice 12 months ago like "hey i've been around for a while and seen this resource stuff before, BHP will hit $20 in the next couple of years" and I'm like "sure OK, whatever" - as he walks off to his stockbroker...........

 

[TjamesX]

Alright back to the topic at hand.

I am shaping my views of investing around the long term picture that 'i percieve'. The picture being related to economics makes it extremely 'approximate' but there is really no better way fundamentally to do it.

If the 'muddle through economy' does eventuate as the article has outlined then I think this has flow on affects to how I would invest in equities. Previously I have thought a prudent way to invest any 'lazy' cash was in competent and respected LIC's (Listed investment Co's), but a 'muddle through economy' would definitly cause me to re-evaluate and possibly hold it in cash instead. I have recently sold some of my shares in ARG more as a result of their exposure to banks. Similarly managed funds will not be a place to be for the long term - they generally won't return much more than the market (flat)

I think that 'passive' portfolios may get hit pretty badly if these conditions occur. This could be very bad for all those retirees out there, but it could happen. This ofcourse will not really affect anyone here, most I would think being described as having 'very active' portfolios, maybe bordering on ADHD

Essentially if I don't know exactly what my investments are doing, and the fundamentals driving them - I'm going to convert to cash (Note: this does not mean not having long term holds, it just means not religously holding them when the overall market changes). Watching market PE ratios, and what they are relative to my holdings is going to be the focus. Looking back at the graph 1960 - 80, was truly a time to 'buy low' and 'sell high', this ofcourse is extremely difficult, however it was definitly not the time to be investing for the sake of 'being in the market'

TJ

 

[Smurf1976]

Thanks TJ and Ghotib, very interesting reading.

I think you are right TJ, it all comes down to fundamentals...the market won't crash because if you get stocks yielding 10%+ the buyers will come from everywhere and levels will be sustained. I'm just a kid (25), but I reckon that the world is a much more rational place today than it was in the past, mostly because we are better informed...to think that idiots in the 70s believed the world would run out of oil before the year 2000...and they though that flares were cool..and Abba were talented...totally irrational people!

They predicted a PEAKING of oil production not running out.

As for music, they had a couple of funny ones in the 80's too... One was called "rap" and was just a one off joke that nobody would seriously listen to (and radio wouldn't play). The other was called "dance" music when it became very popular in 1988 and was supposed to be history by 1989 at the latest...

And the 90's... Dare I mention "boy bands" or "girl bands"? Or that genre that is just SO late 90's - "techno". Let's face it, can anyone remember the name of even one techno artist or the name of the big hit they had? Takes the concept of "forgettable" to a new level.

And already this decade we have the really big joke (that's how it will seem in the future) - Just get a bunch of wannabe singers and put them on TV... And people will even watch it!!!

World really more rational?

 

[TjamesX]

Interesting Article from Alan Kohler;

There are two simple reasons that there are 9000 hedge funds - also known as absolute return funds - scouring the leftovers of the world's financial markets for easy, low-risk pickings: the great bull market is 22 years old and must end some time; and flowing from that is a realisation that risk and return are not relative concepts: if you lose money it is little consolation that your neighbour lost more.
AdvertisementAdvertisement

In the 22 years between 1960 and 1982 the All Ordinaries index rose from 220 to 476, a compound annual growth of 3.5 per cent.

In the following 22 years to the present it has risen to 4109 - a compound annual growth rate of 9.8 per cent - almost three times the rate of the preceding two decades.

Full article is worth a read

http://www.smh.com.au/news/Alan-Koh...e-to-work-at-it/2005/04/05/1112489487759.html

TJ

 

[TjamesX]

I just came across this graph, and immediatly thought of this old thread because the cycle reminded me of the US stock market cycle (first post in thread)

The graph is coal fired generation plant orders.

pre 1960 oders low, corresponding to rising stock market
1960 - 1977 orders rising, corresponding to flat stock market
1977 - 2000 orders falling/flat, corresponding to rising stock market
2000 - present orders rising, corresponding to flat stock market

 

[Smurf1976]

I just came across this graph, and immediatly thought of this old thread because the cycle reminded me of the US stock market cycle (first post in thread)

The graph is coal fired generation plant orders.

pre 1960 oders low, corresponding to rising stock market
1960 - 1977 orders rising, corresponding to flat stock market
1977 - 2000 orders falling/flat, corresponding to rising stock market
2000 - present orders rising, corresponding to flat stock market

Off the topic of the stock market but directly relating to that graph is that coal fired plant orders, a very key alternative to oil particularly in the 1970's, went DOWN in response to the oil price surge and then went UP after the oil price collapse in late 1985. In other words, high oil prices do NOT lead to the accelerated development of alternatives and in fact the reverse is true.

 

[Smurf1976]

An interesting foreign media link discussing the Australian economy. In short, they suggest we are running up far too much debt at a time when commodity prices have boomed and this could lead to problems if/when that boom fades.

http://www.iht.com/articles/2006/01/12/opinion/edbowring.php