We have experienced a lot of calamity over the last 10 years. We have had bubbles, ranging from the Dot.com run-up, to the housing bubble and credit crisis and currently the commodities bubble. Of course, we have also had disasters like 9/11 and the Great Recession.
What has been the impact on the market? Towards the start of the last decade, the S&P 500 experienced three negative years in a row (2000-2002). That only occurs roughly every four decades. Big news on its own. Then the whole decade was negative. That was HUGE news. A negative decade for the S&P 500 is a “two-century” event. Very rare.
These last 10 years would make just about anyone down on the market and the economy. With all of these bubbles swirling around, I have never been bullish, either.
A silver lining
One big money manager, billionaire Bill Gross, firmly believes in a “new normal.” By new normal he means low GDP growth and high unemployment forever. I think that is nonsense. America has a dynamic, multi-layered economy that prizes innovation and growth. That is our saving grace.
I heard recently we can even balance the federal budget by 2014 by simply freezing government spending. How could that be? Because America is a dynamic, multi-layered and growing economy.
There is a technical term that sums up my new optimism. It is called “reverting to the mean.” That is a fancy way for saying returning to normal. After such extreme events this “rule” says we should expect a more normalized market return. We could even experience better-than-average returns in the next several years. I would be happy with normal yearly returns in the eight to ten percent range.
Support from the IMF
This is not just blind confidence, either. The International Monetary Fund has estimates for our GDP. From 2011 to 2015 we are estimated to hit new, never-before-seen highs in our economy. Going from an estimated $14.6 trillion in 2010 to $18 trillion by 2015.
In good company
There are always opposing views about the future. There are some very passionate pessimists like Bill Gross. But there are some other optimists. Another billionaire money manager, Ken Fisher, went so far as to call Gross’ new normal “idiotic.” Fisher also alluded to more growth ahead, saying, “Get ready for this market’s second leg.”
More level-headed optimism has come from Warren Buffett, saying recently “I am a huge bull on this country.” Even Fed Chairman Ben Bernanke has said “…it is reasonable to expect some pickup in growth in 2011 and in subsequent years.”
How to profit
What does all of this mean? It could mean risk will once more pay better than safety. If you have been using the mattress for your investments now could be a good time to slowly increase your exposure to the market.