Bad Idea To Park Your Money In Stocks
|Apr 17, 2009|
What can Americans expect in the next decade? A savings boom, anemic annual GDP growth, a deflationary cycle, a sickly stock market and a return to boring banking. And this is bad news for countries like Japan and China, whose export growth has depended on Americans’ consumerist behavior. This is the prediction Shilling makes in a recent Forbes article.
"In the 1980s the consumer savings rate was 12%. It's now zero. I predict it will climb one percentage point per year for the next ten years. As this shift away from consumption works its way through our economy, the real GDP annual growth rate will fall one percentage point. That's big, given that real GDP rose at an annual rate of 3.6% during the boom from 1982 until 2000. A new class of more-sober consumers will use most of their increased savings, which will cumulate to $6 trillion over ten years, to pay down debts. A good deal of these savings will be swallowed up by the biggest spendthrift of all, the federal government, in the form of deficits.
The great American savings boom that I am predicting won't be a pleasant experience for foreign countries that have depended on our consumerist nation for export growth. This is already happening in China and Japan."
In his Insight newsletter, Shilling makes a case of bonds beating stocks by 11.1 times in the past 28 years.
Marketwatch.com’s Paul Farrell seems to agree with Shilling that stocks make a poor investment, even in the recent past.
"We've also been writing about the absurdity of trading and investing in stocks for a long time. Back in mid-2008 when the DJIA fell below its 2000 high (11,722) it was obvious to investors that their portfolios had flat lined for eight years. Yes, zero returns on your portfolios for eight years. And it's worse when you deduct fees, commissions, taxes and account for inflation: Most portfolios lost over 65% of their value since 2000."
Farrell goes one step further to say that stock investors have been getting a rotten deal because of greedy Wall Street bankers ‘stealing’ from them.
"Yet, while Main Street investors were being scammed, Wall Street bankers were paying themselves huge megamillions in salaries plus $36 billion annual bonuses to their staffs for selling us their loser stocks. In 2006 during his last year as CEO of Goldman Sachs, former Treasury Secretary Hank Paulson added $38 million to his half-billion fortune."
Shilling thinks the secular bear market that really started in 2000 may hang around for another decade, due to slower GDP growth both in the States and abroad, with 2% to 3% annual deflation. He warns that nominal GDP might not grow at all.
"We also believe that a faltering economy will put more pressure on profits and stocks, and initiate chronic deflation, supporting current low Treasury yields ... the dollar is rallying as economic weakness spreads abroad and the commodity bubble is bursting."