In response to the thread on the last decade to nowhere for the S&P. Stock markets and currencies seem to be pricing in a global recession at the moment, although you might infer that we're just facing a normal cyclical event with the US financial and housing woes and deficits just the start of a broader (but regular) downturn in the World's economy. A lot has been said of decoupling and, although there may be some merit to this argument with infrastructure being such an important part of emerging countries' economic growth, there is strong evidence that performance in the US still greatly affects the wider picture. The implications for the next ten year are very difficult to accurately forecast but I think it would be interesting to see what beliefs are shared and why. Also the opposite ends of the spectrum can be entertaining. So, to start off, I see the emerging economies of China, Brazil, India, Russia (and their satellites) as having a generally increasing influence on Global economies and decision making. I appreciate this is old, old news but I believe this to be the strongest case for the next decade. I also think that the old economies of Europe and the US to have a sustainable level of growth that will be on a par to historical rates, although lower than the newer economies. There will be some industries which face too many problems to survive in their current forms (auto) but others which will emerge or continue to prosper (services). Inflation and commodities will both have a greater influence on political and economic decision making than they have over the last 10 years, and research into alternative ways of powering and feeding the general populace (including the resulting deforestation, water shortages and species' extinction) will take the place of Global Warming as the next intellectual debate. Elvis will not return. This is painting with a very broad brushstroke but it is for a ten year period so I think it is allowed in a debate.
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Well I was hoping for a more intellectual debate but behinds getting bigger as a long term trend? I can't argue with that one.
I'm going to try to get back to the intellectual side - wish me luck. One big problem: some BRIC's are cancelling infrastructure orders due to inflation and slowing global demand and the need to not let the poor starve. So we are now commodities and currencies shift but you may also infrastructure as well. http://articles.moneycentral.msn.com/Investing/JubaksJournal/TheKeyToOurWildMarketAsia.aspx This link also documents how China's very aggressive winner-take-all-approach may destabilize the global economy: http://www.realclearpolitics.com/articles/2008/08/the_real_china_threat.html
I don't think we can make assumptions based upon this period during the Olympics - China has pretty much stopped issuing visas and halted production in many factories and construction in many urban areas during this period, affecting everything from flights to energy to commodities. I'd agree, though, that the last 6 years of 10% + growth YoY is something we're unlikely to see again, especially with worldwide demand slowing because of the credit crunch. We may see the slowdown gather pace for H2 2008 and H1 2009, but I'm betting against this being a long-term trend. The other article states that China's currency rigidity threatens manufacturing in the EU and US, but I see the RMB only going in one direction and the author's views are out of date. http://finance.yahoo.com/currency/convert?from=USD&to=CNY&amt=1&t=5y It also states that China is hoarding commodities at the expense of other countries - providing consumer goods to the EU and US and building new cities needs a lot of commodities. There are a lot of new cities going up in the Middle East too. Then there is the population of 1,300 million graduating to a western diet, higher in protein and dairy products with McDonalds and KFC heavily marketed and extremely popular in the bigger cities - it would be hypocritical to blame them for this. Using food for gas to power their cars? Not so much. The Chinese government have a big problem with pollution but their financial nous could be a lesson to other countries, they've been increasing reserve requirements and interest rates since early 2007. http://articles.moneycentral.msn.com/Investing/JubaksJournal/TheKeyToOurWildMarketAsia.aspx I think the blame given to China is generally unfairly proportioned to them when the same could be said of many other developing countries in Asia, the EU, Latin and South America and the Middle East, although they easily are the biggest target for criticism. Although they generally can and do use their size and almost unlimited cheap labour to their advantage, who the heck wouldn't? If you want to blame someone why not WalMart for being China's biggest export market. And thanks for the intellectual debate!
Here are my guesses: Commodities will extend this recent correction until people start to give up on the sector and think the secular bull is over. They will then resume their long-term bull market and peak in a speculative mania comparable to real estate and dot.com stocks. After that they will then crash in dramatic fashion. Bonds will die a slow death from 1000 cuts as the 10 year eventually goes to a yield of 10% due to soaring inflation. Equities will experience a similar performance to the late 70s and early 80s - some nice periods, cheap valuations (good for stockpickers), but most of the index returns will come from dividends and dollar-cost averaging during periodic corrections. Real estate will fall for another year or two before finally bottoming out in a few years at a point of maximum pessimism. The market will experience doldrums/slow recovery and finally start to get back on track in say 5 years time. Internationally, I think the situation is too fluid to make long-term calls. Asia looked great in 1988 but ended up having a horrible decade due to the 97-98 crisis. China could do great, or it could invade Taiwan and see stocks get annihilated. India might continue booming, or elect socialists to power and impose capital controls like Malaysia did. I think China and India could provide good investment opportunities in the next few months, for the long-term. Commodity-linked countries could do well long-term once the current commodity bear comes to an end. My contrarian play would be that Europe and especially Japan will start to reform, and perform much better than expected. However this has been on the cards for years and not really happened. The advantage is that now their stocks are cheap enough that you should make nice long-term returns even without any major reform. With it, you could have a serious bull market in the next decade. My investment recommendations are therefore: 1) Look to bottom-fish in commodities once it hits a point of maximum pessimism later this year or in 2009. Then buy & hold once everyone is saying the commodity bull is over. Sell only once you get dot.com levels of speculative mania. 2) Select stockpicking, Buffett-style, should perform well now that the S&P is off 20%. You may have more downside this year but the bear will come to an end within 1 year maximum, and probably much sooner. Index investing will do ok - much better than the last 10 years, but not as good as the 80s or 90s. 3) Avoid most fixed-income. Consider TIPS, or a long TIPS/short-10 year spread. 4) Real estate could provide a nice bottom-fishing opportunity within 1-3 years. There's a risk of being early but if you buy at deep value you should do well longer-term. Real estate stocks will probably bottom before the physical real estate market.