Low Growth, Low Returns -- For Now

One of the major themes in my book, The Fall and Rise, is the wavy-ness of just about all things. It's in the title of the book, in how we think about the Roman Empire, about loss and redemption. All of this is in my book. But we see it everywhere. I learned this after several decades in the investment management business. The stock market is certainly a familiar example of the ups and downs of stock prices, the Bulls and Bears, the fortunes and the wipe-outs. Understanding this phenomenon will help one to gain the virtues of patience and persistence.

We are in a period of time where investors can expect low returns. We have been in this mode since the beginning of the millennium. It means that we have been in this low return market for 11 1/2 years. Yes, during this time we have had some great markets along with the declines, but for the past decade plus, returns have been meager for most asset classes. Compare this to the period from 1982 to 2000. The Dow Jones Industrial Average was below 1000 in 1982. It was a high return market. And when one looks back further, one can very easily see a pattern of low returns followed by high returns; i.e., 1948-1966 and 1966- 1982. These periods have lasted 16 to 18 years each. If the pattern holds (and I do emphasize if), We should remain in the current low return market for about 5 or 6 more years.

And, when we look at the economy, we can see that it will take some time to come out of the current slow economic mire we find ourselves. It will take some time to get on the right path for lower debt and to adopt saner fiscal policies, just as it took several years for the nation to come to grips with rampant inflation of the late 60's and 70's. Remember the price controls President Nixon tried and the WIN (Whip Inflation Now) buttons of the Ford Administration and then President Carter having to address the plummeting U.S. dollar by appointing Paul Volker who finally raised interest rates high enough to pressure down inflation? Then, of course, there was the Great Depression which lasted throughout the 1930's and into WWII.

I am optimistic and believe we will survive and thrive after the next few years. But, it will take some time to get to a happier economic and investment environment. I know how hard it is to have patience at times like these, but that would be my advice.