Is steady stock market growth a distortion?

[Darth Wong]

Someone pointed this out to me a while ago: virtually all discussions of the "long-term behaviour of equities" focus exclusively on a single stock market: the American stock market, based on its behaviour in the 20th century. Certain broad-ranging statements such as "equities recovered in a few years even during severe historical downturns" are pretty much entirely based upon Wall Street's history. Other countries have experienced horrendous long-term downturns that took more than a decade (or in some cases several decades) to sort out.

Given the massive disruptions and enormous shifts in global balance of power over that time and America's uniquely advantageous positioning relative to other nations during the last 90 years, is it truly reasonable to treat the American stock market as indicative of all stock markets, or as indicative of future global trends moving forward? Why focus exclusively on America's stock market history as the model for the behaviour of equities? And since it is unlikely that the 21st century will be a mirror of the 20th century, why assume that any of this will apply in the future?

I guess it just seems to me that anybody who calls himself an "economist" or "analyst" in the financial field is nothing more than a trend-watcher at the end of the day, and often a fairly narrow trend-watcher at that. They're all goddamned experts at making predictions for events that have already happened, though.

[Big Phil]

Someone pointed this out to me a while ago: virtually all discussions of the "long-term behaviour of equities" focus exclusively on a single stock market: the American stock market, based on its behaviour in the 20th century. Certain broad-ranging statements such as "equities recovered in a few years even during severe historical downturns" are pretty much entirely based upon Wall Street's history. Other countries have experienced horrendous long-term downturns that took more than a decade (or in some cases several decades) to sort out.

That's because the stock market's behavior tends to be predictive of overall economic trends. It's a lot easier to say "we're in a bear market" (referring to the NYSE) than to try and explain all of the complications involved in housing prices, jobs moving overseas, inflation, etc.

Given the massive disruptions and enormous shifts in global balance of power over that time and America's uniquely advantageous positioning relative to other nations during the last 90 years, is it truly reasonable to treat the American stock market as indicative of all stock markets, or as indicative of future global trends moving forward?

No

Why focus exclusively on America's stock market history as the model for the behaviour of equities? And since it is unlikely that the 21st century will be a mirror of the 20th century, why assume that any of this will apply in the future?

Most economists don't focus exclusively on the US stock market; they look at London, Tokyo, and others as well. At the end of the day, however, all stock markets are heavily intertwined. What happens in NY affects London and Tokyo, and vice versa.

I guess it just seems to me that anybody who calls himself an "economist" or "analyst" in the financial field is nothing more than a trend-watcher at the end of the day, and often a fairly narrow trend-watcher at that. They're all goddamned experts at making predictions for events that have already happened, though.

Pretty much - economics is good for predicting long term macro-economic trends; it's not so great for telling Joe Blow what's going to happen to his pension fund in ten years, or what's going to happen to the price of milk (other than it's probably going to go up).

[ArmorPierce]

basically yeah. The idea that your wealth will definitely grow if you have a wide portfolio is based on the idea of permanent growth that came into being with industrialization. It is expectaions made without consideration that the economy might actually retract for a long extended amount of period because it has not happened since the 20th century in this country. Of course when you face depletion of very necessary resources, this line of thinking falls flat on its face. It assumes that all resources are basically infinite. If one resource is becomes too expensive, we'll just shift a cheaper substitute. Real life don't always allow that to happen, at least in a timely manner that will not create large economic disruptions.

[aerius]

I can't remember who said it, but someone once compared the stock market in recent years to the Polish blanket joke: A Polack realizes his blanket is too short to cover his feet and wants to make it longer, so he cuts 12" off the top and sews it onto the bottom. And that's pretty much the economy & markets over the last while, borrow a shitload of debt on shitty credit and tack it onto the profit side of the ledger via some questionable accounting.

At this point I've given up on all those mainstream economists I see on TV and magazines, they've just been plain wrong more times than I can count. I recently flipped through one of the Canadian economics journals, I think it was the Canadian Journal of Economics, specifically the issue where they did their year end review of the predictions they made at the beginning of the year. Their prediction percentage was well under 50%, I'd have been better off flipping a coin than following their advice. One clown was claiming that the Canadian economy has effectively decoupled from the US, and that the recession down there won't spill over and affect us. I'm sure all the Ontarians who lost their manufacturing jobs over the last few months will agree with him.

I don't think economists understand the big picture, the markets as they are now are not like they were in the past, so what happened in the past isn't necessarily applicable to what happens now and in the future. The system is far more interconnected, a lot more leveraged & complex, and we're also running into growth contraints thanks to energy, food, and environmental issues. They see the pieces but they can't seem to connect the dots and put them together.

[Admiral Valdemar]

The market points are going up, the dollar is going down. To make it any simpler would require MS Paint.