After my piece yesterday where I ran a regression on Shiller’s data from 1871-1998, I got some comments pointing me to this piece at Clusterstock, citing the estimable Richard Bernstein. I will confirm what was suggested: after 10-year negative total returns, the returns are always positive over the next ten years in the US context, 1871-1998. The average is a ~7.5%/yr return.
But not so in Japan. We can talk about lost decades here, but in Japan the stockmarket has gone nowhere for over 20 years. Given some of the Japan-like remedies the US is pursuing, why should we expect returns that match the historical averages? Japan went through a period where debt levels were a very high multiple of GDP, like the US is at today.
When conditions are abnormal due to very high debt levels, one must factor that in, and not give credibility to statistics realized during periods with low debt levels.