Murray, the next recession was in '69 ... six years later! The DOW rallied 17% in '63, 15% in '64 and 11% in '65 ... a great winning streak.
Times are very different. We now have huge structural budget deficits, an incredibly large and growing current account deficit, and a significant housing bubble.
And inflation was lower, job growth stronger, energy prices stable, a trade surplus and better income equality in the '60s (just to name a few of the differences). There are many differences so the periods don't compare, but it does show the conundrum isn't unique and the yield curve isn't magic.
The idea that there was a bear market from 1966 to 1982 is deceptive and not actually true. Stock dividends were quite high, above 4% and even above 5% through the period and dividends are not taken into account only index levels. The return on dividend paying or value stocks was fine through the period, while an investor who had what passed for a broad index would have made a return above 5% for the period. Not a great return, but stocks were getting cheaper in valuation and an explosion was inevitable. Also, the peiod assumes who froze your account at the market peak in 1966 and added nothing from then. The 1970s was a terrific time to buy value and wait.
jennifer
i'm not convinced that 66-82 was not a bear market, that's a long stretch of sideways market. sure, there were some stocks that did well, but most did not. the bear market refers to the norm, not the exception. also if you take a look at inflation (see the link below) during this period, that 4-5% dividend was often insufficent for real positive returns. while someone who bought in the late 70s or early 80s did get a great buy in hindsight, someone who was buying stocks, in general, in the late 60's, probably did not see much real return, if any, for a long time. ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
I understand and agree in a sense. There was lots of damage real or nominal done to investors in the great growth stocks of the 1960s, or to investors in small cap growth stocks especially. But, the real investment effects need be taken apart. Remember there were no index funds to invest in, so everyone held managed portfolios in different guises. Value stocks large and small really did quite well. Also, buying into market declines was a successful strategy.
The data do not agree with your optimism. The total (including dividends) annualized real return of investing in the broad US equity market from 1966 to 1982 is -1%.
Erik, the yield curve narrowed in '63. I don't think many people that follow the yield curve would argue it was predicting 3+ years ahead ('66 and later).
I'm not really arguing anything profound, just pointing out that the current situation is not unique. I'm definitely concerned about the structural deficit, globlal imbalances, housing bubble, etc..
I don't believe the supply of Treasuries then was anywhere near what it is today. Current federal debt is approx $7 trillion. In the '60's I don't know what, but not that much.
I don't think anyone would say it needs to predict 3 years ahead. These things are fuzzy. Did the year curve invert (or almost invert) in 63? 64? Did the secular bear market start in 66? 65?
Depending on where you define the endpoint, you could have the "causation" at less than a year. That is certainly believable. Economies don't turn on a dime.
Ditto ErikR's question... did the curve invert in the mid 60s? I remeber hearing something about that... if not then at another time?
I'm really not much of a historian on this 'yield curve conundrum' thing and am curious... I could see how in extremely screwed up times - like the early 80s when interest & inflation both took off that long term rates might be lower than short term rates... the market justification being that things can't stay this screwed up for ever... but I am stunned by the current curve & the narrowing...
But in 1965 the bond yield went over 5% for the first time since the civil war.
We had what was called a growth recession in 1967 and the stock market was weak, but not it did not fall enought to be a bear market -- double digit declines.
wasn't there a credit crunch and recession in the mid 60s?
Murray, the next recession was in '69 ... six years later! The DOW rallied 17% in '63, 15% in '64 and 11% in '65 ... a great winning streak.
Times are very different. We now have huge structural budget deficits, an incredibly large and growing current account deficit, and a significant housing bubble.
And inflation was lower, job growth stronger, energy prices stable, a trade surplus and better income equality in the '60s (just to name a few of the differences). There are many differences so the periods don't compare, but it does show the conundrum isn't unique and the yield curve isn't magic.
Best Regards!
On the other hand, two years later a 17 year secular bear market in equities began: 1965 - 1982.
It seems to me the only way this is logical is if people think deflation is possible in the near future.
The idea that there was a bear market from 1966 to 1982 is deceptive and not actually true. Stock dividends were quite high, above 4% and even above 5% through the period and dividends are not taken into account only index levels. The return on dividend paying or value stocks was fine through the period, while an investor who had what passed for a broad index would have made a return above 5% for the period. Not a great return, but stocks were getting cheaper in valuation and an explosion was inevitable. Also, the peiod assumes who froze your account at the market peak in 1966 and added nothing from then. The 1970s was a terrific time to buy value and wait.
jennifer
i'm not convinced that 66-82 was not a bear market, that's a long stretch of sideways market. sure, there were some stocks that did well, but most did not. the bear market refers to the norm, not the exception. also if you take a look at inflation (see the link below) during this period, that 4-5% dividend was often insufficent for real positive returns. while someone who bought in the late 70s or early 80s did get a great buy in hindsight, someone who was buying stocks, in general, in the late 60's, probably did not see much real return, if any, for a long time.
ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt
i meant to say someone who was buying stocks in the late 60's to mid 70's did no see much real return for a long time, not just the late 60's.
JS
I understand and agree in a sense. There was lots of damage real or nominal done to investors in the great growth stocks of the 1960s, or to investors in small cap growth stocks especially. But, the real investment effects need be taken apart. Remember there were no index funds to invest in, so everyone held managed portfolios in different guises. Value stocks large and small really did quite well. Also, buying into market declines was a successful strategy.
Jennifer:
The data do not agree with your optimism. The total (including dividends) annualized real return of investing in the broad US equity market from 1966 to 1982 is -1%.
Negative. Secular Bear Market.
Erik, the yield curve narrowed in '63. I don't think many people that follow the yield curve would argue it was predicting 3+ years ahead ('66 and later).
I'm not really arguing anything profound, just pointing out that the current situation is not unique. I'm definitely concerned about the structural deficit, globlal imbalances, housing bubble, etc..
Best to all.
I don't believe the supply of Treasuries then was anywhere near what it is today. Current federal debt is approx $7 trillion. In the '60's I don't know what, but not that much.
Just sayin' ...
CR:
I don't think anyone would say it needs to predict 3 years ahead. These things are fuzzy. Did the year curve invert (or almost invert) in 63? 64? Did the secular bear market start in 66? 65?
Depending on where you define the endpoint, you could have the "causation" at less than a year. That is certainly believable. Economies don't turn on a dime.
Ditto ErikR's question... did the curve invert in the mid 60s? I remeber hearing something about that... if not then at another time?
I'm really not much of a historian on this 'yield curve conundrum' thing and am curious... I could see how in extremely screwed up times - like the early 80s when interest & inflation both took off that long term rates might be lower than short term rates... the market justification being that things can't stay this screwed up for ever... but I am stunned by the current curve & the narrowing...
Any ideas?
But in 1965 the bond yield went over 5% for the first time since the civil war.
We had what was called a growth recession in 1967 and the stock market was weak, but not it did not fall enought to be a bear market -- double digit declines.
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