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Is U.S.A. 2020 like Japan 1990?

It sure looks like there’s a fair amount of hubris in the American stock market these days.  The American 30-year bond just hit an all-time low of 1.89%.  We had three rate cuts in late 2019 despite strong employment and GDP numbers.  Household debts are again high as are defaults on car loans.  Many people (and especially many advisors) continue to blithely opine that we might be the middle of a more than 20-year supercycle and that it’ll be another decade before we have a major pullback in capital markets.

 

I call B.S.  Perhaps more to the point, my view is that this is a clear example of groupthink / herding / motivated reasoning that will almost certainly give way to narrative fallacy justifications down the road.

What if the pundits got it exactly wrong?  I want to stop here and remind that I’m asking a question; not making a statement.  I don’t know (neither does anyone else), but… what if instead of this being the beginning of a supercycle, we’re at the tail end of a 11-year long bull market?  What if this is as good as it gets for a long, long time?

 

I’d like to take this opportunity to remind you of what has already happened to the second-largest stock market on the planet.  On December 29, 1989, the Tokyo Nikkei hit an all-time high of 38,915.  That high, coinciding nearly exactly with the end of the decade, has not been seen since.  Ironically, stock markets around the world also took a big tumble at the end of 1999 heading into the scare around Y2K.  Again, a big tumble coincidentally occurred at the end of a decade.  As I write this, we’re in Q1, 2020 and the roaring 2010s have just ended.

 

Getting back to Japan, their market dropped all the way down to a low of 7,055 in March 9, 2009 – a total drop of nearly 82%.  That’s comparable to the experience of the Great Depression.  Even now, more than 30 years after hitting that peak, the Nikkei is below 24,000.  That’s STILL a drop of well over one-third more than thirty years AFTER hitting an all-time high.  With Japan as a backdrop, we could  point to that experience as a potential cautionary tale.  I personally would not be particularly surprised if the U.S. market was trading at a lower number in 2030 than it is today.  Does your plan take that possibility into account?

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