Let’s open with a big picture review of the first twenty years of this century. For the following major asset classes, from WTBFOTS 2000 0101 to 2020 0101 (when the ball fell on Times Square), the total returns in US dollars were as follows:
As a multiple:
US TBills: 1.4138
US TBonds: 6.9686
In percentage terms:
US TBills: 41%
US TBonds: 597%
US TBills: 1.75%
US TBonds: 10.19%
To those who get their financial news from mass market media, it may come as a surprise that copper, gold and long term US Treasuries handily outperformed stocks over two decades. It should come as no surprise that outlets aligned with Wall Street prefer to tout Wall Street investments. But here at Financology we have no such outside masters. The actual historical record speaks for itself.
Imagine that … mere chunks of inert metal outreturned stocks over twenty years … the asset class we’re taught to count on for “the long run”. Why? Simple … stocks started out overvalued. This also informs our outlook for the next ten.
In our last installment, Major Trend Review, we briefly discussed our outlook for the next decade. Reversing the order of the past decade, nonUS stocks will power ahead over US stocks. Stylistically, “value” will outperform “growth”. Physical commodities such as copper and gold will outperform US stocks. Why? Valuation. By a variety of measures – price to revenue, price to dividends, price to book, market cap to economic output, investors’ stock allocations – US stocks are historically overvalued. US Treasuries, while more attractive than most other sovereign bonds, are likewise richly priced and unlikely to repeat their outperformance of the past two decades.
These are high confidence long term calls. (Insert graphic of pounding the table). The recently updated Synthetic Systems charts (posted under Market Analysis) are shorter term in nature, and inherently more speculative. I think of the long term outlook as an aid in deciding how much of each asset class to own; Synthetic Systems helps with when to make the adjustments.