I really hate to say this, but we could easily see another decade of little to no returns in the market. I really, really want the markets to do well, but as my parents told me many times in my youth, “just because you want something to be true doesn’t mean it will be true.”
When it comes to what types of returns we should expect from the markets over the next 10 years, I want to believe we’ll have a good decade, with 10 percent average returns and perhaps better. But like my parents said, just because I want something . . .
As we look over the macro-economic landscape, I see three huge red flags that have the ability to crush any hope of sustained market growth over the next 10 years. Sure, we are likely to see periods where the markets go up, but like the decade of the 2000s, any real growth will likely be temporary.
Red Flag #1
Over the past 30 years, our government has been a poor steward of the money they have received. We make fun of their seemingly unquenchable thirst for spending money they don’t have. Unfortunately, their spending habits have reached the point where it’s all about to crash down on all of us.
All you have to do is visit www.debtclock.org to see what’s going on. Here’s a statistic for you: the government has promised certain benefits to retirees including social security, prescription drugs, and Medicare. If you add up just those three items, the government has to collect the equivalent of over $1 million from every taxpayer just to pay for what they’ve promised. Now, what do you think the odds are that they will be able to do that?
They show zero ability to make any meaningful changes to their spending habits. And we all know it’s just a matter of time before it blows up in our collective faces. That time is much sooner than it is later. And I’m not even talking about the “Fiscal Cliff” that is looming right now.
Red Flag #2
Historically, our economy has grown between 3 percent and 4 percent, which are healthy growth numbers that can drive comfortable growth opportunities. But heads up, those days are over. Going forward, you should be anticipating more like a 1 percent GDP growth, which puts us in the same position as Europe. We’ve all seen the impact that 1 percent growth rates have on Europe. They are currently in a double dip recession, half of the countries are facing bankruptcy . . . it’s a complete mess.
Red Flag #3
None of this will change until people wake up to reality and understand that it has to change. The last election is all the proof we need. When President Obama took office, the national debt stood at $10 trillion. Four years later, it is $16 trillion. Clearly, the general population isn’t all that worried about the spending habits of the people in Washington DC. The economy is in serious trouble; yet we still re-elect the same people that governed over that track record.
It’s obvious through our elections that the majority of Americans are fully ignorant of the fiscal mess we have on our hands. And until America wakes up and smells the coffee, nothing will change. It’s not a Democrat or Republican issue; it’s an American common sense issue. The last 12 years the S & P 500 has averaged in the neighborhood of only 2.5 percent per year. It’s now looking like we could be in for another decade of something similar.