“All of this has led to weird idiosyncrasies, euphoria, and contradictions. Stocks ballooned, tripling in value since 2009”
This is like 9% compounded for 13 years, which is in line with historic averages.
This is like 9% compounded for 13 years, which is in line with historic averages.
Point being: the third variable no one ever takes into account when considering Buffett's advice: "just invest in broad market indexes" literally only works in the US, and only has worked historically. It's not a coincidence that the US is the youngest developed economy on the planet.
In other words: How high would US stock returns have been if interest rates were near-0% throughout the 1900s? Have interest rate adjusted returns actually decayed in the past ten years? How long before the US stock markets stop behaving "historically" and start behaving "globally"?
I'm not asserting entire bearishness on the us economy. The US is still the nerve center of global finance, software technology, education, retail spending, every economic metric you look at the US leads in. That doesn't disappear. Just that: the story of the next twenty years may be the US financial indicators trending more toward historical global norms.
The US and the concept of a developed economy both started at Square 1 around the same time. That's a huge structural advantage. Developing or selling some new technology? No laws. Let's write one; with the input of the businesses doing the development. Other companies had to update their infrastructure over time; we green-fielded it. Much cheaper. Opening a factory? Take a thousand acres of land in the west, no one is using it, take it. Raw materials? An entire content worth of them, virtually untouched by the natives.
Those are all structural advantages which helped fuel the hyper-accelerated growth the US experienced throughout the past two centuries.
And the broader point is, every day that goes by everyone gets older; including the US itself. New businesses contend with more laws and regulations. Infrastructure was built without a plan for how to pay for its maintenance. The land is claimed, and the new owners want a million bucks for it.
That's the reversion to the global mean; that now, we're dealing with a lot of the same shit everyone else is and has been for centuries.
Everyone invests in US stocks/ETFs/companies if they want to see good returns.
The tax system and other incentives lead people to not really work their hardest and best, and this propagates all the way to the stock indexes.
edit: https://www.businessinsider.com/austerity-has-damaged-europe...
I used to be a believer in this. But I recently moved from Sweden to UK, from a very socialist country to a very capitalist one.
In capitalist societies people live in survival mode. This doesn't work well in every profession, especially managerial roles become very predatory. It does work well in tech/individual contributor roles though.
Some mundane tasks that are needed for tech development to go smoothly over long periods of time, is easier to manage in socialist Sweden. Whereas in UK, I suspect in US too, people tend to gloss over mundane managerial processes/goals like scrum, roadmap planning, business goals etc.
For reference, the US share of world GDP is about 25%.
It would not surprise me at all if the most scalable, profitable, and growth-oriented companies ended up on the S&P 500 regardless of where in the world they started or where their revenues originate.
I'm not saying anything about interest rates -- your point there might be spot on -- but US stock markets have huge global exposure, and your implied assertion that there's some kind of "global" benchmark equity growth rate doesn't seem that sound.
The fact that the companies get a lot of their revenue from other countries is moot. In those countries, investing in index funds is not the highest performing long term investment.
My post was in response to the prior poster's claim that US exceptionalism here doesn't have a clear rationale, and that one might expect some sort of "reversion to the mean" where "mean" there is the performance of broad equity markets in other countries.
In my post, I'm saying that one shouldn't expect that broad markets indices to grow comparably in other countries, and the fact that they don't says little about how well they do/should/will perform in the US.
/s (maybe?)
According to classical economics people either spend or save, there can be no such thing as indecisiveness or paralysis. What this means is that a too low interest rate would immediately cause inflation and therefore result in a higher nominal interest rate because the rate of capital formation is too slow.
In practice we haven't observed any capital shortages that weren't the result of a one off event. The interest rate appears to be the only barrier and the return on capital followed it in countries excluding the USA.
https://www.uidaho.edu/-/media/UIdaho-Responsive/Files/Exten...
The +9% average is long-lived and covers periods with drawdowns so no abnormality there.