What A Decade

Seems that the period from 1998/1999 to today has been a terrible time to be either an employee or a stock investor.

Wages Down

The graph below is from a NY Times article talking about how many Americans did not get a head during the boom of the last decade. At the end of 2000 the median (or typical) American Family made about $61,000. At the end of 2007 the estimated median income was $60,500. These numbers are from the Census Bureau and have been adjusted for inflation via the NY Times article.

The article goes onto explain that, "(t)his has never happened before, at least not for as long as the government has been keeping records. In every other expansion since World War II, the buying power of most American families grew while the economy did.'

'More than anything else — more than even the war in Iraq — the stagnation of the great American middle-class machine explains the glum national mood today. As part of a poll that will be released Wednesday, the Pew Research Center asked people how they had done over the last five years. During that time, remember, the overall economy grew every year, often at a good pace."

"Yet most respondents said they had either been stuck in place or fallen backward. Pew says this is the most downbeat short-term assessment of personal progress in almost a half century of polling.'

The average American family has also been battered around by the end of the technology bubble in 2000 and the collapse of the housing market in 2006/2007. They have also had to deal with increases in food and gas prices making it hard to feed a family and fill up the car. No wonder the outlook is so downbeat.

Stocks Down

Below is a graph from a WSJ article talking about the stock markets lost decade. Since 1999, the S&P has returned just 1.3% a year over the past decade. This return takes into account inflation and dividends. You would have made more money by investing in the US Long-Term Treasury Bonds (7.68%) over the same period.

The article explains some of this under-performance due to after a period of "extraordinary returns, as we did from 1982 through 1999, then usually the next 10 years aren't very good," says Prof. Sylla. His research suggests that exceptional booms steal gains from the future. When the booms end, returns become subpar, so that average returns over the longer term fall back to the 7% norm. Economists call this "reversion to the mean," the idea that exceptional performance can't last forever.'

Don't look for a quick recovery either:

"We have to accept that this is no longer a nation of 4% real economic growth. This is a mature nation that no longer has a strong manufacturing base," says Steve Leuthold, chairman of Leuthold Weeden Research in Minneapolis. He believes that another bull market is on the horizon, perhaps following some additional stock declines. But that future bull market, he contends, could be followed by another bear market that could bring stocks back close to where they are today."

"Before another lengthy bull run can begin, stocks need to overcome two problems: the hangover from the high prices of the late 1990s, and the continuing effects of the exceptionally low interest rates instituted by the Federal Reserve in 2001 and again today. Those low interest rates helped push corporate profits higher, but also fueled borrowing excesses that led to today's economic problems."

Both articles are a good, if depressing, read.

Source:
'For Many, a Boom That Wasn’t', by David Leonhardt, NY Times
Stocks Tarnished By 'Lost Decade', E. S. Browning, WSJ {$$$}