Please let me know in advance so I can sell everything before then. You certainly seem to have timed and predicted every bear market perfectly—especially with a statement like “in 10 years, we’ll be right back where we are today,” which is a pretty arrogant claim…
Looking at rolling 10-year periods for the S&P 500 (including dividend reinvestment), the historical probability of being in the black after 10 years has ranged from over 94% to 97%.
Just for the record:
Sharply and rapidly rising interest rates (especially due to central bank hikes aimed at combating inflation) do indeed massively increase the risk of an economic slowdown or recession. The reason for this is that loans become more expensive for businesses and consumers. Nevertheless, there have also been periods in history with interest rate hikes that ended in a so-called “soft landing” (e.g., in the U.S. in the mid-1990s, 1994–1995), without leading to a full-blown recession or a severe market crash.
When looking at statistical warning signs, it is not just the peak in yields that is decisive, but the yield curve (e.g., the spread between 2-year and 10-year U.S. Treasury bonds). When the yield curve inverts (i.e., short-term interest rates are higher than long-term rates), a recession has historically followed within 12 to 24 months in over 80–90% of cases in the U.S. However, the mere fact that long-term interest rates reach a multi-year high does not necessarily lead to an immediate stock market crash.
Looking at rolling 10-year periods for the S&P 500 (including dividend reinvestment), the historical probability of being in the black after 10 years has ranged from over 94% to 97%.
Just for the record:
Sharply and rapidly rising interest rates (especially due to central bank hikes aimed at combating inflation) do indeed massively increase the risk of an economic slowdown or recession. The reason for this is that loans become more expensive for businesses and consumers. Nevertheless, there have also been periods in history with interest rate hikes that ended in a so-called “soft landing” (e.g., in the U.S. in the mid-1990s, 1994–1995), without leading to a full-blown recession or a severe market crash.
When looking at statistical warning signs, it is not just the peak in yields that is decisive, but the yield curve (e.g., the spread between 2-year and 10-year U.S. Treasury bonds). When the yield curve inverts (i.e., short-term interest rates are higher than long-term rates), a recession has historically followed within 12 to 24 months in over 80–90% of cases in the U.S. However, the mere fact that long-term interest rates reach a multi-year high does not necessarily lead to an immediate stock market crash.
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•@MrSchnitzel00 Negative 10-year returns occurred almost exclusively when investors entered the market at the absolute peak of a bubble and the 10-year period ended immediately after a severe crisis—for example: 1929–1939 (the Great Depression) or 2000–2010 (the so-called “Lost Decade,” triggered by the bursting of the dot-com bubble in 2000 and the financial crisis of 2008)
Even during the period of extremely high interest rates and inflation in the 1970s and early 1980s (when interest rates in the U.S. reached over 15%), broad market indices rarely fell into negative territory on a nominal basis over a 10-year period. However, real returns (after adjusting for inflation) were negative at times during this period.
Even during the period of extremely high interest rates and inflation in the 1970s and early 1980s (when interest rates in the U.S. reached over 15%), broad market indices rarely fell into negative territory on a nominal basis over a 10-year period. However, real returns (after adjusting for inflation) were negative at times during this period.
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1Sem.
@MrSchnitzel00 Shall we talk about the current Shiller P/E ratio for the S&P 500 (40)? That's quite a bit above the average (17). The "Lost Decade" forecast isn't based solely on the current rise in interest rates. That merely marks the beginning of this phase.
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•@Epi A high Shiller P/E ratio may point to more moderate expectations for the next 10 years (e.g., 5–7% per year instead of 10%+), but historically, it by no means guarantees a negative return or a level below today’s.
Furthermore, you can’t compare the current situation to 2000 (the dot-com era)—companies are all posting high profits and have strong outlooks. AI is driving this even further.
Risk is definitely elevated, but I find your claim that we’ll be in the same place in 10 years as we are today to be quite exaggerated.
Furthermore, you can’t compare the current situation to 2000 (the dot-com era)—companies are all posting high profits and have strong outlooks. AI is driving this even further.
Risk is definitely elevated, but I find your claim that we’ll be in the same place in 10 years as we are today to be quite exaggerated.
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1Sem.
@MrSchnitzel00 I see it a little differently. It doesn’t matter at all what kind of apparent record profits are on paper, because standard balance sheets and quarterly figures only tell half the story here. All this AI hype has been heavily financed on credit for the past one and a half to two years. The massive investments are eating up almost all of the operating cash flow, while the corporations are flooding the market with bonds. Above all, off-balance-sheet debt—through hidden leasing contracts and partner funds—masks a truly gigantic mountain of debt behind the scenes. Without this extreme and concealed debt financing, this breakneck pace would never be feasible, and in the end, some companies here will suffer massive losses (e.g., Oracle will be the first).
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•@Olli68 So you think the investments won't pay off? And that CEOs don't know what they're doing? And that AI has little future?
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1Sem.
@MrSchnitzel00 Long term or short term? We don't need to debate the long-term success of AI. But in the short term, I see the whole thing as a walk on a razor's edge. And there's going to be a major crash in this sector in a few years. I'm already seeing some major signs of that. But that's just my opinion.
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@Olli68 There are definitely a few risks—I agree with you there—but maybe everything will turn out just as the CEOs and others envision? And no one can predict a crash exactly; it’s going to happen, but the question is when… maybe it’ll keep going for a few more years. A crash usually comes very unexpectedly.
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1Sem.
@MrSchnitzel00 Exactly. That last sentence sums it up perfectly. 👍
I’m afraid there will be major confrontations between the public and data centers in the near future. At some point, the public will realize that local data centers don’t create jobs, that they’re ugly, high-security structures in the countryside, and that local electricity is becoming expensive and unreliable. I really fear that will happen.
We’re already seeing a freeze on new permits.
I’m afraid there will be major confrontations between the public and data centers in the near future. At some point, the public will realize that local data centers don’t create jobs, that they’re ugly, high-security structures in the countryside, and that local electricity is becoming expensive and unreliable. I really fear that will happen.
We’re already seeing a freeze on new permits.
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@Olli68 Well, I don't entirely agree with you—it has both positive and negative effects. A lot of it also benefits the community because that's where the investment goes… Why don't you check out the penultimate interview—I think it was with Jensen Huang? There are a lot of misunderstandings and misjudgments there…
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1Sem.
@MrSchnitzel00 Sorry, but Jensen Huang says and does a lot just to avoid a crash or a slowdown. It's like asking the finance minister if taxes are a good thing.
But anyway, we'll see...
But anyway, we'll see...
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