Worst 10-Year Stretch
via NYT
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Some charts are simply too beautiful to relegate to our digital media slum, and this one fits the bill.
Its from Floyd Norris’ NYT column today, A 10-Year Stretch That’s Worse Than It Looks:
“IN the last 82 years — the history of the Standard & Poor’s 500 — the stock market has been through one Great Depression and numerous recessions. It has experienced bubbles and busts, bull markets and bear markets.
But it has never seen a 10-year stretch as bad as the one that ended last month.
Over the 10 years through January, an investor holding the stocks in the S.& P.’s 500-stock index, and reinvesting the dividends, would have lost about 5.1 percent a year after adjusting for inflation, as is shown in the accompanying chart.
Until now, the worst 10-year period, by that measure, was the period that ended September 1974, with a compound annual decline of 4.3 percent. . .
For the current period, the total return was negative, at minus 2.6 percent a year, even before factoring in inflation.
Note that the period ending in 1974 had a nominal return of 0.5%; the inflation adjusted return was -4.6%.
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Source:
A 10-Year Stretch That’s Worse Than It Looks
FLOYD NORRIS
NYT, February 6, 2009
http://www.nytimes.com/2009/02/07/business/07charts.html
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February 7th, 2009 at 2:29 pm
But perhaps this will make things different!
http://www.youtube.com/watch?v=dEDIyztZGBA
February 7th, 2009 at 2:30 pm
Great alternative look at old data. The positive I take from it is that starting your investment at the end of a very bad 10-year run will give you above average returns. Obviously, a Bullish indicator for Feb 2009.
February 7th, 2009 at 3:08 pm
So what you’re saying is:
After WWII we were the preeminent manufacturing nation and it was reflected in the S&P.
Somewhere in that era a certain group of folks (let’s call them a “Generation”) entered adulthood and eschewed those things that allowed their forefathers to endow them so handsomely.
Then in desperation they turned to debt and mass psychology to paper over the fact that things had changed.
Then that “strategy” blew up in their faces.
Well, when you put it that way, I agree.
February 7th, 2009 at 3:08 pm
It will get even worse, as 1999, a year with 21% return, is replaced by 2009 in the 10 year MA.
February 7th, 2009 at 3:22 pm
I just thank God that I am only 41 and not 61. The Baby Boomer generation (who I have been employed by for the last 20 years) is a complete and total JOKE when it comes to common sense, managing people and basically understand anything about business risk. They are all a bunch of optimistic idiots who only want to be told the great things about their companies. God forbid that you tell them their Company has idiots managing people. Anything negative is swept under the carpet. CEO’s are all just glorified sales guys who don’t know sh*t!
The need more pessimistic 40 year olds running these Companies to keep things real.
February 7th, 2009 at 4:19 pm
My theory: Rush Limbaugh wanted the market to fail, to “prove” that not enough deregulation is bad.
February 7th, 2009 at 5:18 pm
@VennData: Looks like we have a new spokesman, Michael Steele, RNC Chairman. Same message however.
February 7th, 2009 at 5:31 pm
Oh, don’t be so hard on the boomers. Look at that time they grew up, up to the peak in 59 — they were the most spoiled kids ever! Those of us who came of age during the 70s know how much things sucked then, we had Nixon, etc. No wonder our attitudes are different from our older siblings. And those younger than us, growing up neglected by older boomers, you know how to deal with disappointment, too, even if you may have gotten the financial goodies and spoiling.
We are all, however, very very lucky people. The ones who really suffer from all this, those laid off from jobs in countries where the living standard is already abysmal, are going to be the ones hurt most badly.
Now, let’s all stop whining and figure out how to fix this mess and rebuild an economy that actually works, shall we? I would like my kids to be able to get decent jobs sometime soon after all!
February 7th, 2009 at 6:17 pm
Looking forward to the return of bad fashion, including butterfly collars and leisure suits. Looks like we’re going back to the future to the 70′s, only now we get deflation first followed by hyper-inflation. This time period will likely make the ’70′s look fun in retrospect.
February 7th, 2009 at 6:44 pm
Excellent read from Barron’s:
Recession? No, It’s a D-process, and It Will Be Long
http://online.barrons.com/article/SB123396545910358867.html
February 7th, 2009 at 8:46 pm
Went to a “gun carry” course today, as several of the wives in my circle of friends strongly felt this was something they wanted to do….
What was interesting, I suppose, was the instructor and the general comments…
This fellow normally gives one of these courses every two months…the last three months, he is giving them weekly..yes, weekly.
Several of the participants could not get ammunition for their handguns…local stores are either sold out or have it on backorder…I tried ordering from Cabelas, and they kept sending me backorder notices, now three months on backorder…luckily found some ammuntion to complete the course in another county…
This is not like any other time I remember…people here are starting to get frightened…
..just my two cents…at least my wife I suppose feels a little safer, whatever that is..
February 7th, 2009 at 8:49 pm
This chart warms my heart as someone who believes in the symmetry of cycles and waves. Not sure how much “value” the graph has except for in the VERY, VERY big picture. i.e. If you have a 50% up or down year and then 9 years of flatness…you can show +/- 5% returns over a ten year period. However, if you weren’t there for the 50% year all you saw was 0%’s …so it’s a little deceiving.
February 7th, 2009 at 9:04 pm
And this, from Mish, is probably the most frightening thing I have yet read about the recession/depression….
http://www.thebostonchannel.com/money/18648637/detail.html
Job Site Allows Seekers To Bid On Low Pay
If this catches on, I think all of us here can see where it will lead…truthfully, when I was in college I had a recurring dream for a month or two that when I was seeking work, all the other applicants tried to underbid what I would work for…and now here it is…
This could be enormously frightening..
February 7th, 2009 at 9:26 pm
It is amazing how hard times bring out the gun nuts in the US. Busy buying ammunition and cleaning the gun, worrying about something someone the TV or the AM radio told them to worry about, no assessment of the situation they are actually in. All poor dupes made abject by media fear campaigns. It’s gonna be awhile, scraping the bottom, but lets see how the stimulus plays out before we get crazy. Cut Transmission.
February 7th, 2009 at 9:46 pm
that’s great Bones- if things real get bad I can always count on getting necessities from the good unarmed folks like you- gotta go now- need to by some ammo
February 7th, 2009 at 10:13 pm
Unless you think America’s best days are behind her, this is the greatest buy signal I have seen yet. Buy low sell high. So buy after the 10 year worst period for the SP500. Seems like a no brainer to me!
I’m starting to think America’s best days are behind her.
I like the old BP website, by the way.
February 7th, 2009 at 10:31 pm
It’s important to consider fundamentals. The price of a stock is only as good as it’s earnings. Based on Robert Shiller’s data the market could go down a lot further before it turns around (50-60%). Look at the historic data on the real P/E ten year average earnings ratio (first Excel file) and make up your own minds:
http://www.irrationalexuberance.com/
P.S. Does anyone still think Social Security privitisation is still a good idea?
P.P.S. I don’t carry a gun (although, thanks to my father, I know how to use one). Based on some of the comments here I’m considering it, because there seems to be a lot of GD crazy people running around lately.
February 7th, 2009 at 11:20 pm
Bruce in Tn:
In re: guns et al. Government doesn’t come out and says this sort of stuff, but the fact is the best way to create civil disorder is to have a bunch of young MEN without jobs. This is why there is such an emphasis on shovel-ready jobs and jobs that can employ men doing “whatever”…weather-proofing homes, building fences, digging ditches, filling up ditches…whatever it takes…keep the young men employed doing “something.” If you don’t do this, you will get some civil unrest.
In re: Lowest bidders for work. This may be a bit controversial, but minimum wage is a bunch of shit. It’s a TERRIBLE economic idea actually. Wage flexibility can be the one factor that keeps employment higher in tougher times.
February 8th, 2009 at 12:08 am
Actually the chart is too positive. The ROI on the S&P 500 is much worse because of survivor bias. The chart is only valid if you had an ETF on the S&P 500 during that time without a specific stock group. I don’t think ETFs came into being until around 1986 but I’m not sure.
Anyway, for those who like nifty charts, here’s a good one:
http://www.motherjones.com/mojoblog/archives/2009/02/12147_spending_vs_tax_cuts_as_stimulus.html
February 8th, 2009 at 12:17 am
Bruce in Tn,
Worried about gun play or violence? Move to Vermont. Everyone has one here except lefties like me.
Don’t get hung up on the “things are going to shit” scenario. No matter how bad they seem, any day for us in America is better than an average day for an American in the 19th century. Do you know what the leading cause of death during the days of the “wild west” was? Abcessed teeth. People drank their “snake oil” (cocaine or morphene laced syrup) so they felt no pain but still the infection caused blood poisoning, unconsciousness and then death. We’ve got it easy. Relax.
February 8th, 2009 at 1:51 am
@Bruce in Tn Says: February 7th, 2009 at 9:04 pm
Job Site Allows Seekers To Bid On Low Pay
Is that the definition of redefining stupidity?
Boss: I just crashed your economy in order to knee cap you an keep you from competing with me economically
Employee: Oh Yeah? Well, I want a pay cut! :roll:
I was reading the article and I couldn’t help thinking that the Onion could reprint the article word for word and it would fit its stable of writing perfectly with no one the wiser
@Andy Tabbo Says:February 7th, 2009 at 11:20 pm
Government doesn’t come out and says this sort of stuff, but the fact is the best way to create civil disorder is to have a bunch of young MEN without jobs.
Very good point. Also, if you get very smart(aka college) men without jobs then you have political organizers for the rabble as well. Most significant demonstrations worldwide in my memory that I recall are either organized on college campuses or through labor unions
And I just stumbled on a great feature in firefox tabs. If you hold down the ctrl key, any number you then type in will take you to the corresponding tab in the browser. It works great for people like me who like to keep seven or eight tabs open in two separate browsers
February 8th, 2009 at 1:54 am
ps As a matter of fact I’m going to heads up them to the article with that very suggestion and a disclaimer at the bottom that, unfortunately, the article is not, we repeat IS NOT satire :)
February 8th, 2009 at 2:25 am
I will probably be crucified for bringing this up…
Suppose that a large hike in minimum wage and social security benefits was announced for 2 years from now, say to $12 per hour. And, you have a phase-in period starting in over a year. Wouldn’t this trigger a domino effect of wage increases based on expectations of future inflation? A de facto dollar devaluation that may help everyone pay down their debts.
February 8th, 2009 at 4:02 am
ammo for Barry in his travels?
William Pesek, the savvy Asia columnist for Bloomberg, reports -Thirteen years later Japan is entering another severe slump that looks like even worse than that of other advanced economies…
The sad case of Japan free fall is a cautionary tale of what happens when a high flying economy has a real estate and equity bubble that goes bust and avoids for too long doing the painful structural reforms and clean-up of the financial system that is necessary to avoid a long-term L-shaped near depression. Japan had over a decade of stagnation and deflation, then a mild sub-par growth recovery that lasted only three years and is now spinning into another severe stag-deflation.
Let me explain next in this note why the US and the global economy face the risk of an L-shaped near depression if appropriate policy actions are not undertaken…
First, note that Japan made many policy mistakes that the US should and could avoid: it cut policy rates two years after the bust of its asset bubble while the US eased monetary policy aggressively after August 2007; it went into QE (quantitative easing) reversed ZIRP (zero interest rate policy) too slowly; it waited two years after the bursting of its bubbles to do a fiscal stimulus (and reversed it too early with a consumption tax) while the US did one – albeit a failed one – last year and is doing another large one now; it created a convoy system of zombie banks and corporate that were restructured too late while the u.s. MAY become more aggressive in cleaning up the financial system; it had structural rigidities – like lifetime employment – that slowed down the adjustment while the US has flexible labor markets (with workers moving fast to new sectors/regions where there are jobs once they lose one).
But in many dimensions the U.S. started its financial and economic crisis in a much WORSE shape than Japan. Indeed, Japan was in much better macro and financial shape than the US before and during its stagnation: high household and national savings and low leverage of the household sector, large current account deficit, net foreign asset position that allowed it to finance its large fiscal deficit during the stagnation via domestic savings. The US instead has had near zero household savings and massive leverage for years, large current account deficits and is the largest net foreign debtor in the world, thus relying on the kindness of strangers or, better, on the kindness of its strategic rivals (China, Russia) or unstable petro-states to finance its twin fiscal and current account deficits.
And the US may make some of the same mistakes as Japan and suffer of similar macro policy constraints that may limit the ability to resolve the financial crisis in a more rapid manner.
First, monetary policy – however aggressive – is like pushing on a string when you have a glut of capacity and credit/INSOLVENCY rather than just illiquidity problems.
Second, fiscal policy has its limits in a worlds where you are already the biggest net debtor and net borrower in the world and where you need to borrow this year $2 trillion net ($2.5 trillion gross) to finance your fiscal deficit while every other country (including your traditional lenders/creditors) are now running large fiscal deficits with the risk of a sharp back-up in long-term interest rates once the tsunami of new US Treasuries hits the market (see the back-up in Treas yields in the last 10 days and the scary signal it sends about coming dislocations in the US Treasuries market).
Third, the US is taking an approach to bank recap and clean-up that looks more like Japan (convoy system and delayed true clean-up as the necessary pain to shareholders and unsecured creditors of banks is avoided/delayed) than the successful Swedish outright takeover/nationalization process.
Fourth, the market friendly approach case-by-case approach to the necessary debt reduction of insolvent private non-financial agents (corporate for Japan, households for the US) will be too slow as working out one household at the time the debt overhang of 15 million insolvent households will take years when a systemic debt overhang requires an across the board debt reduction (as in Mexico and Argentina) that is not politically feasible – so far – in the US.
Thus, even if the US were to do everything right and fast enough (on the monetary, fiscal, bank cleanup and household debt reduction) we would still have a severe two year U-shaped recession until early 2010 with a weak recovery of growth (1% or so that feels like a recession even if you are technically out of it) in 2010-2011.
But if the US does not do it right this severe U-shaped US and global recession may turn into a nasty multi-year L-shaped near depression like the one experienced by Japan. We don’t have to go back to the Great Depression (when output fell over 20% and unemployment peaked over 25%); even a stag-deflation and Near-Depression like the Japanese one would be most severe for the US and the global economy. And while six months ago I was putting the odds of this L-shaped near-depression at 10% or so such odds have now risen to one third. So time is of the essence and the clock is working against US and global policy makers. The time to stop dithering is well past; and the time to implement a program of forceful, coherent, credible, globally-coordinated monetary, fiscal, financial clean-up and debt-resolution is now. The US and global economy are truly risking a near-depression if the policy reaction is not bold, aggressive, sustainable and credible.
February 8th, 2009 at 7:29 am
http://www.bloomberg.com/apps/news?pid=20601080&sid=a6aaWZ8ab8yU&refer=asia
IMF Says Advanced Economies Already in Depression
February 8th, 2009 at 9:35 am
Broken : “The positive I take from it is that starting your investment at the end of a very bad 10-year run will give you above average returns.”
You mean like 1974, the closest analogous period? Looks to me like you just about would break even. Wow.
This chart, like so many others Barry has posted, tells anyone with an iota of sense, absolutely nothing.
It takes no accounting for valuation. Look at the two peaks. In 1959, stocks had a an average valuation, a q-ratio of .6. In 1999 they were at their most over-valued in history, with a q-ratio of 1.8.
Actually, the attention this chart is getting does tell me one thing, the market morons may drive this rally til April, or even May.
February 8th, 2009 at 9:49 am
RE: Andy Tabbo. do you have any research or numbers to back up your claim on minimum wage? Or is it because you have heard people who also don’t have any empirical date bad mouth Minimum Wage and you are fortunate enough to have had a decent enough education and the right factors behind you to secure a decent job.
If you have the done the research and can build models to back up your assertion, do so immediately and get it peer reviewed (I’m sure your work is so drum tight, it was go through unscathed.). You will be up for every major prize in economics, because to date no one else has been able to demonstrate and model why “it’s a terrible economic idea”.
February 8th, 2009 at 10:09 am
«rebuild an economy that actually works, shall we? I would like my kids to be able to get decent jobs sometime soon after all!»
With a doubling of the global workforce pool? Sure, if they go to a low cost nation and demand no benefits. Why should USA employers give USA workers a decent job supporting their luxury living lifestyles when there are literally billions of people willing to work a lot harder for much less money and no benefits?
Why pay someone to live in a large house with white picket fences in California when there are millions of people in China willing to do the same job while living 4-6 to a room in rented bunk beds?
«Job Site Allows Seekers To Bid On Low Pay
If this catches on, I think all of us here can see where it will lead…»
Well, that is not a fully new idea, consider eLance.com and RentACoder.com, have been around for years for IT tasks that can be done remotely.
What JobAPhiles.com does is to extend the model to local jobs that require physical presence in a given area, and to permanent jobs.
But permanent jobs in the future will be only for Ivy league graduates and for those living in very low cost areas.
February 8th, 2009 at 10:44 am
“Oh, don’t be so hard on the boomers. Look at that time they grew up, up to the peak in 59 — they were the most spoiled kids ever!”
Just to point out: no other generation has had as much internal competition for everything – jobs, homes, savings, retirement accumulation… wnen you are in that bubble of population everybody else wants what you want when you want it, and that is often a recipe for problems. You can attribute a lot of the bubble-and-collapse cycles we’ve been through to that fact.
February 8th, 2009 at 11:00 am
Stav.
You sound like some sort of disgruntled economist. If you are an economist of some kind, I’m sorry for you. The problem with economists is their attempt to come up with “drum tight” theories on subject matter where it is impossible to come up with “drum tight” theories. What a horrible existence that must be–forever looking for fail-safe economic “truths” where there can never be.
There are some “truths,” though. One is that EVERY good or service has a market clearing price. When you put an arbitrary “floor” under the price of a good or service, there will be times when the market for such goods and services will not clear. Glutted markets will materialize eventually. Alternatively, whenever there is a “cap” on the price of a good or service, there will be times when you will have scarcity of the goods or services. (China and diesel fuel in 2008 is the most recent perfect example of price caps)
I think it’s impossible to reach any hard and fast conclusion on the effectiveness of wage floors because there’s actually a relatively small number of people who work for min. wage in the U.S. Also, there are large groups of workers, namely waiters/waitresses, who work for LESS than minimum wage because of the tips. While a much smaller percentage of the population, there are some workers who actually PAY the owners to work at the establishments. These people are referred to as “Strippers.”
So in the economic fishbowl that is the U.S., there will always be too many variables to understand “for certain” the effectiveness or ineffectivess of wage floors. However, if we see a prolonged deflationary downturn, then wage floors WILL become a problem. Perhaps the academia will soon have some real life strains and stresses to analyze the effectiveness of minimum wage laws.
February 8th, 2009 at 11:35 am
Andy Tabbo,
Graphs like this one are inherently misleading: overlapping 10 year returns have huge serial correlation at the monthly level, and make even random returns look chock full of “cycles and waves.”
Charting packages should focus less on pretty output, and more on validating input. E.g. “You are trying to plot a series of discrete numbers as a curve. Please write a small essay on interpolation methods, otherwise the background of the chart will be set to a bitmap of the word JUNK.”
February 8th, 2009 at 12:56 pm
All handguns should be illegal.
February 8th, 2009 at 1:07 pm
Bruce in Tn @9:04 pm.
From my father who lived through the depression: If you were lucky enough to be working, someone would come in almost daily and ask your boss what he was paying you and then offer to do the same job for significantly less money.
February 8th, 2009 at 1:09 pm
gorobei:
I agree with you. That’s why I questioned how much value there was in the chart….
Look up the Kondratieff Wave sometime and you’ll see what I’m getting at in terms of “the really big picture.”
February 8th, 2009 at 3:24 pm
Assuming the chart is not merely detecting a pleasing pattern against a backdrop of noise, it shows that negative performance seems to cluster, and that their duration seems to correlate with performance (the deeper the drops, the longer they persist), suggesting that many more heartbreaking years lie immediately ahead.