Whistler,
I am not so sure that the boomers will be able to keep the stock market going for another 5 to 10 years. On the one hand, their propensity to save seems to be considerably lower than that of earlier generations. On the other, I suspect that the new information technologies will create a deflationary tsunami, once the feverish investments in information age infrastructures starts moderating and we start reaping the fruits of these investments -- IMO this will happen in less than 3 years. That's why I believe that we have seen the stock market peak for at least the next decade.
The long term average return of stocks is 9%. This includes the booms as well as the busts. Returns in the years following stock market peaks are much lower. There have been three well defined stock market peaks in the last century: 1901, 1929, and 1966. During the 20 years following those peaks, annual stock market returns were -0.2%, + 0.4%, and +1.9% respectively. If, as I believe, we are witnessing a year 2000 stock market top of the same significance as the tops of 1901, 1929 and 1966, buy and hold stock investors are in for a very nasty surprise.
Fortunately, all is not lost. As I pointed out in my previous post, there are plenty of juicy returns to be had in bond land, and I think those returns will become even juicier over the next couple of months. These returns are pretty close to the long term average return on stocks, and, given the current valuation of stocks and my expectation of future deflation, are a no brainer for the buy and hold crowd.
Kyros |
