Stock market boom? What stock market boom? It's been a bear market for return since August 2000 . . .

. . . and it could easily continue to be a bear market for return for three more years. The average length of the last three secular bears was 20 years, and we're only at 17.4 years through January 2018. Or, it could all end Monday in tears. Have a nice weekend!

As good as you think it's been, average return is underperforming the long term average of 9.13% by almost 38%.

Stocks haven't really been worth all the trouble since the year 2000

HaHaHa, HaHaHaHaHa: I got your "booming economy" right here, fella

The Reagan bull ended in August 2000 with final average nominal per annum return of 18.99%, real 15.28%

It's hard to escape the conclusion that US GDP has been highly dependent on fertility

Peak Baby Boom 1952-1957 when births per 1,000 of population averaged 25.17 (graph 1) is probably the simplest explanation for outsized GDP performance during the years when this generation turned 22 from 1974-1979. More babies in the 1950s equaled more GDP come the late 1970s.

We only wish for that GDP now.

Jimmy Carter, elected in 1976, still owns the best 4-year GDP record in the post-war, despite everything you've been told (graph 2). It's nothing special he did really, it's just that in 1975, the year before his election, you had the very peak of the Baby Boom turn 18, those born in 1957 when births per 1,000 hit 25.3 for the second and final time in the post-war. They and the rest of their cohort were ready to consume in numbers never seen before. Their era spanning from Nixon/Ford from 1972 when the first of them turned 20 through Reagan in 1984 when they turned 32 represents the coming of age of America's most powerful economic demographic and the period when America's GDP performance hit its highest levels (average 46.3%).

Their failure to have enough children themselves, however, is also a big part of the explanation for the GDP trend heading south after their time. They consumed, but they did not at all produce children like their parents had. In fact, the nadir of births per 1,000 before the current period occurred from 1972 to 1977, precisely the period exactly 20 years after peak Baby Boom 1952-1957. Births per 1,000 averaged just 14.92 during this period, a rate nearly 41% lower than their parents' era. So the most prolific fruit of the Baby Boom had gone on to become themselves the least prolific, having the fewest children ever.

Not surprisingly, without enough bodies the economy inevitably began to run out of gas starting about two decades after that. Clinton era GDP performance was never as good as Reagan's, and the era was marked by various warnings, not the least of which were the bond debacles of 1994 and 1999. The great Reagan bull market ended in August 2000, a recession ensued in 2001, average S&P 500 return has been reduced to 5.2% per annum over the last 17 years, and the GDP growth rate after Clinton has averaged just half what it averaged before Carter (16% vs. 32%). No wonder the trend is down so dramatically (graph 3).

The solution?

Have LOTS more kids, and wait 20 years, if you want America to still be America, that is. Otherwise, let in even more than the 1 million immigrants we already let in annually, and prepare to kiss your country goodbye.

But don't hold your breath. Births per 1,000 have fallen to an average of just 12.5 for the five year period 2011-2015.

They don't call it the suicide of the West for nothing.

graph 1

graph 2

graph 3

Full-time job growth under Trump so far beats Obama and Bush, but that's about it

Note that employers panicked under Obama and fired people like crazy after his election, so there was a steep decline in full-time.

So far the growth of full-time shows a tentative thumbs-up to Trump, but still nothing like the vote of confidence typical after previous changes at the helm of state.

The puny 2.5% growth under George W. Bush, keep in mind, was still all pre-911 and post-Reagan bull market, which ended in August 2000. Trump is doing better than Bush, but not by much.

George Herbert Walker Bush's legacy: It took only 7 years of NAFTA to destroy hours worked in the United States

Hours of all persons grew 44% during the Reagan bull market, which ended in August 2000. Since then, hours of all persons has grown just 3%.

NAFTA went into effect in January 1994, eleven years after the Reagan bull began and a little over one year after Bush inked the deal. Seven years later hours of all persons peaked.

It reminds me of Bill Clinton's innovation, the so-called Taxpayer Relief Act of 1997, which blew up the housing market after just 10 years.

Republicans take away your job, then Democrats come along and take away your house.

If you're living in your car, you'd better watch your back.  

Hillary can't claim she'll continue the good economy because it isn't a good economy

From the macroeconomic point of view of GDP, jobs and homeownership, the economy under Obama has been a bad joke.

Economic growth is lagging, lagging I say, the horrible, awful George W. Bush . . . by $2 trillion. Current dollar GDP under Obama has grown a paltry 28.2%. Under Bush, the worst in the post-war until now, it at least grew by 41.7%. Obama should kill to have George Bush's economic growth, and Hillary probably will, by starting another war. Nothing boosts GDP like war-spending.

Meanwhile job growth as measured by monthly total nonfarm has slowed in 2016 by over 20% compared with 2015, to 181,000 new jobs monthly vs. 229,000 new jobs monthly last year. Is that a hopeful trend?

And if you think 2015 was so great, it wasn't. If the same percentage of the population had been working in 2015 as worked in 2007, there would have been 7 million more employed than there were. There has been a huge contraction in employment, which explains the GDP problem. Without work there is no product.

You can see this vividly in full-time jobs. Compared to October 2007, we have just 2.6 million more full-time jobs in October 2016 than we had in 2007. Think about that. Just 2.6 million more full-time jobs but population has increased by 22 million. After recessions, full-time has always recovered to the previous highs in 2-3 years, but not under Obama. This time it took 8 years, a terrible stain on the economic record.

Next consider housing. There have been 6.4 million completed foreclosures since September 2008 even as the Feds have done everything they can to get housing prices to recover, distorting the economy to the point that today the typical $247,000 existing home is unaffordable for 90% of individual wage earners. No wonder the homeownership rate, at 63.5%, has plunged to a level last seen in 1985.

In the end about all Hillary surrogates have to boast of is the stock market. Larry Kudlow featured one on his radio program this weekend doing just that. But estimates of how many Americans own stocks vary considerably. Gallup recently put it at 52%. Pew in 2013 put it at 45%. Shockingly, the Federal Reserve itself estimates it's more like 13-15%. In the best case only half the country is reaping benefits from stocks, and probably a lot less than half.

Those people who had the foresight to invest in March 2009 have done extremely well. On average the S&P 500 is up over 17% per year since then through September 2016.

But how have long term investors done, people who buy and hold in retirement accounts? Since the last stock market boom peaked in August 2000, they are up only 4.32% per year. That's almost 64% worse than the historical post-war performance of 11.9% with little upside on the horizon as the market has made new all-time highs and is obscenely valued.

Nothing Hillary Clinton is proposing looks remotely likely to improve any of these measures, except maybe by starting a new war.

My boy will be 18 next year. Please don't vote for her.

The main reason we are still in a secular bear market

Ed Easterling, Crestmont Holdings LLC, quoted here:

"P/E has not declined to levels that are required to drive a secular bull market.”

--------------------------------------------------------------------

Other forces have been hard at work manipulating prices, inhibiting discovery of actual value.

Top 10 investing years for subsequent 10 year returns since 1965 to date

1988: 18.80% nominal per annum average from the S&P500 12/'88-12/'98

1987: 18.15%

1989: 17.99%

1990: 17.57%

1979: 17.27%

1981: 16.53%

1982: 16.16%

1978: 16.14%

1977: 15.02%

1985: 14.98%

These years have an average total S&P500 market capitalization to GDP (in trillions) ratio of 48.

The ratio at the end of 3Q2014 was 112, which historically produces 10 year returns averaging about 3.24% nominal.

Tonight's S&P500 level is 0.8% above the inflation-adjusted August 2000 level, the previous high

2058 vs. 2041.

Happy talk from Robert Lenzner of Forbes misses the 180 month bear market in performance

Robert Lenzner of Forbes, here, is only off by an order of magnitude (18 months vs. 180):

Bull markets last on average about 97 months each and gain an average of 440 points in the Standard & Poor’s 500 stock index. By comparison bear markets since the 1930s have an average duration of only 18 months and an average loss in value of about 40 percent.

Let's talk the most recent bear market in performance.

If you invested your nest egg in the stock markets fifteen years ago in a total stock market index fund, your average return annually, say in VTSMX, would be 4.75% through 2014, per Morningstar.

On the other hand, if you had taken the safe route and invested everything in an intermediate term bond index fund, say in VBIIX, your average annual return would be 6.52% through 2014, also per Morningstar.

DESPITE THE PHENOMENAL PERFORMANCE OF STOCK MARKETS SINCE 2011, WHEN THE S&P500 REVISITED THE 2008 CLIFF LEVEL BEFORE THE BOTTOM IN 2009, STOCKS ARE STILL IN A BEAR MARKET. NO ONE REALISES HOW BAD THEIR CONDITION STILL IS.

Only fools are investing in the stock market today. Returns from stocks 10 years from now will be similarly disappointing as they have been since 1999. If you have physical gold, keep it, imho. And if you can, raise cash, imho. Opportunities for riches to agile investors who are prepared to scoop up bargains as in the 1930s are in the offing.

As everyone should know by now but doesn't, 1999 was a blow off top period leading up to the previous inflation-adjusted stock market peak of August 2000.

Valuations today have still not reproduced themselves in comparison to the end of 1999 on a total market cap to GDP basis, but they are way above the 2007 levels and represent an historically exceptionally rarefied level of valuation. Valuation at the end of 2014 based on total stock market cap to GDP will be relatively certain with the second report of 4Q2014 GDP at the end of February.

Stay tuned.

Total market cap to 3Q2014 GDP ratio falls slightly on third revision . . .

. . . to 1.415 from 1.419.

The ratio was 0.74 at the end of 2008, indicating that the stock market was 91.2% more expensive at the end of September 2014 than it was at the end of 2008.

At rich valuations the return from stocks over the subsequent long haul is surprisingly small. From the peak in August 2000 to now the average nominal return from the S&P500 has been just 4.22% per annum, with dividends fully reinvested. From the peak in October 2007 to now the average nominal return has been 6.35% per annum.

The great bull market from July 1982 to August 2000 produced an average annual return of 18.99%. 

Vanguard bond index funds, 15 year performance per annum vs. stocks

HMS Vanguard

Per morningstar.com, annual performance 15 years to date for all popular bond index funds beats stocks hands down, except for the short index:

VBISX: 4.05% (short)

VBMFX: 5.42% (total)

VBIIX: 6.48% (intermediate)

VBLTX: 8.30% (long).

Average annual total nominal return from the S&P500, dividends fully reinvested, has been only 4.52% per annum.

That's what happens when stocks are inflated in value over a long period of time, as they have been almost continuously since the late 1990s, except for about four years between 2008 and 2012. And remember, present gains off those lower valuations are already part of the relatively poorer performance of stocks over the last 15 years. It could be much worse.

Bonds still beat stocks over the last 15 years

"King Kong" 1933

Your average annual nominal return from the S&P500 with dividends fully reinvested comes to 4.61% from October 1999 through October 2014, per Ironman.

Your average annual nominal return from the Vanguard Intermediate Term Bond Index Fund (VBIIX) for the fifteen years to 11/28/14 has been 6.48%, per Morningstar.

That's a 40% better rate of return from bonds than stocks on average.

"Hey, what's this show about, anyway?

"I don't know — they say it's some big gorilla.

"Oh, geez — ain't we got enough of them in New York?"

S&P500 Milestone: Closes today above all-time inflation-adjusted high set in August 2000

The all-time inflation-adjusted high occurred way back in August 2000 at 2046.21. Today's close was 2051.80.

Yippee, the bear market is officially . . . dead for a day.

The S&P500 ends the week just 0.7% below the all-time inflation-adjusted high in August 2000

The current real price of the S&P500 is 2031.92, an all-time high in the nominal sense.

This level is just 0.7% off the all-time inflation-adjusted high, which was 2046.21 and occurred in August 2000.

Valuation is rich at 26.61 for the Shiller p/e, but well-off the December 1999 peak of 44.19. However, the market crash of 2008-09 was preceded by the Shiller p/e peaking at 27.55 during 2007.

The Shiller p/e has been in a never-never land of high valuation above 26 for extended periods since October 1996, coinciding with the famous onset of "irrational exuberance". You have to go back before that all the way to 1929 to find valuation at 27 and above.

Since the last market peak in August 2000, real returns from stocks have averaged just 1.61% per year through August 2014

politicalcalculations.blogspot.com

The inflation-adjusted market peak was in August 2000 at S&P500 2044.67, still unequalled (2011.36 is as high as we've gotten). Through August 2014, your average real return from stocks, that is, your return adjusted for inflation with dividends fully reinvested along the way, has been just 1.61% per year for 14 years. Without dividend reinvestment, your return actually has been negative annually because of inflation. Nominally your return has been 3.95% per year, dividends reinvested.

Compare bonds over the last 15 years to date. Take VBMFX, Vanguard's Total Bond Market Index Fund. Morningstar shows your nominal 15 year return this morning at 5.49% per annum. VBIIX, Vanguard's Intermediate Term Bond Index Fund, has done even better, at 6.59% per annum, nominal.

Clearly, bonds have beaten stocks over the long haul since 2000. And valuations tell you why. Yardsticks such as the Shiller p/e have not dipped below 15 to any meaningful degree over the whole period, meaning stocks have been pricey for the performance you get. The higher the price, the poorer the return.

Expect the same from stocks going forward as long as valuations remain as elevated as they are. Today's Shiller p/e starts out at 24.95.

Market capitalization to GDP for 1999, before the August 2000 high and subsequent crash

The Wilshire 5000 level at the end of December 1999 was 13,812.7. Multiplied times 1.2 yields a total market capitalization of $16.57524 trillion.

Nominal GDP for 1999 was $9.6606 trillion according to the latest figures from the BEA.

The former divided by the latter yields 1.72.

The ratio through March 2014 is 1.41.

The ratio through June 2014 is 1.45.

Why S&P500 2000.02 isn't the all time high

Because adjusted for inflation the August 2000 high was 2048.10, so we remain 48.08 points away from the all time high, or another 2.3%.

Attention long term stock market investors: How's an average 1.53% per year since the last market high in August 2000 sound?

Cause that's all you've got.

The inflation-adjusted S&P500 market high was in August 2000 at 2048.89.