The Next Decade

Today, the headline on CNBC's website cheers "Dow Smashes Record: End of the 'Lost Decade'?"

Since the burst of the tech bubble in March 2000, stocks of course have shown investors the most stingy of returns. Hence, the past dozen of so years have been loosely dubbed the "lost decade." But the decade is only lost in the narrow sense of equity investments. In the world of bonds, commodities and real estate, it is anything but lost. Bonds of every kind, Treasury, high grade corporate, high yield and emerging market, all thrived. Oil, Copper and Gold have all enjoyed significant appreciation. Even Real Estate, despite the drubbing it received during the 2008 financial crisis, still sits on a much higher plateau than the start of 2000.

More aptly, the decade of 90's is the equity decade; the decade of 2000's is the bond decade; the decade yet to come will, I believe, be the lost decade.

To suppress interest rate is to raise asset value. To raise asset value without commensurate rise in cash flow beyond the rate of inflation is to suppress real future return. To buy a 10 year Treasury bond at 1.9% yield is to lock in a return of 1.9% over the next 10 years. That is the very definition of a lost decade. Equities do have a fighting chance as the possibility of technological advancement and productivity gains could propel corporate earnings growth speedy enough to justify current level of valuation or compensate for a somewhat lower level of asset value.

For the past 30 or so years, investments in general have enjoyed relatively healthy gains thanks in part to the tailwind of receding interest rate and upward leverage of both governments and consumers. For the decade to come, we will see at best flat interest rate and possibly a rising rate environment. Governments and consumers alike are now de-leveraging. As a result, the decade to come will prove to be difficult of assets of all classes.