No. of Recommendations: 14
"I read the paper. It was an insult to the intelligence, and a complete waste of time. "The end of an era" is scare-mongering nonsense. It's the same scare-mongering we've heard from talking heads over the years which turned out to be utterly false."
It is quite telling that you need to resort to such phrases as "insult to intelligence", "nonsense", and "scare-mongering" rather than just try and understand what is actually being said. It is clear you are completely missing the point of the paper cited.
Why don't any of your hand waving dismissals address the valuation aspects the author of the original post made?
"The above conclusions are ridiculous on their face, and easy to refute. First of all, if low taxes and interest rates were the catalyst for stocks to go higher during this "lucky" 30-year period, why did the market go down 49% during 2000-2002 and down 57% during 2008-2009? Did you feel lucky during these periods?"
Grear example of missing the forest through all of the trees.
What do you think market valuations were before those drops? Why do you think valuations recovered so quickly both of those times you mentioned (and yes, historically, two and a half years is fast for a recovery).
"But it can also be refuted by the great bull market of 1975-1985, an 11-year period which delivered a CAGR of almost 15%. During the latter part of the 1970s, the top corporate tax rate was as high as 70%! I kid you not. In the early 80s, the tax rates came down to 46%, still high. To add insult to injury, interest rates went straight up from 7.5% in 1975 to a peak of 15% in 1981. It wasn't until Reagan's Tax Reform Act of 1986 that corporate taxes were lowered to 28%.
According to Smolyansky, the double whammy of 70% corporate tax rates and 10+% interest rates should have delivered a knockout punch to the stock market. But that didn't happen. Investors during that 1975-1985 period enjoyed annualized returns of 15%, which is 5% above the long term average."
Again, you don't mention valuations. What was the stock market valuation in 1975 and then in 1985? Also, rates dropped fairly significantly between 1981 and 1985 (the end point of your cherry-picked example) which sort of supports the OP's point (but the time frame is really too small either way).
"I've made 2 points, with data, to refute the contents of the paper. The guy who wrote the paper is an economist at the Fed. Economists at the Fed can't even predict that inflation is not "transitory", what makes you think they can predict the stock market?"
What makes you think they were predicting the stock market? They were discussing the causes of the ridiculously high valuations of the market and the factors that caused it.
"If you are in your wealth building years, and have a job with a 401K, set aside 6 months of emergency living expenses, and any large expenses (like college or a new car) that you expect to incur in less than 3 years in cash. Then set up automatic transfers of 10% of your paycheck into an index fund in your 401K plan. Don't get cute and try to time the market, and for God's sake don't listen to fear mongerers.
For me, the scariest time was during the banking crisis of 2008, with banks like Lehman, WaMu and Countrywide failing all over the place. But I still kept dollar cost averaging into my 401K and focused on my career rather than the market. This is called time diversification. I look back on those contributions now and marvel at cheap I bought the shares at."
The OP factually points out that over the last 30 years stock markets have reached ridiculously high valuations by almost any measurement (P/E, price to sales, etc.) and you then suggest that someone should do just as you did by just investing regularly during the time period of increasing valuations? That completely misses the point. That is the most "Duh!" statement ever.
I don't think any person with an IQ over 80 would argue against the fact a person could do well by regularly investing in a market that is going to have ever increasing valuations. If you told any mildly intelligent, rational person that the stock market was going to be at higher valuations (as measured by P/E or P/S) 30 years from now, then of course they would agree that investing regularly over the next 30 years would be a smart move. The problem with your suggestion is that it requires valuations to keep increasing and be higher in 30 years.
If you think the paper is garbage, then what are your explanations for the fact that valuations have increased ridiculously in the past 30 years? If you don't think it is because of taxes and interest rates then what are your explanations?
