So, the US doing extremely well 100 years from now vs. the US doing very badly 100 years from now could have a non-trivial impact on the perceived value of US assets. I suspect that the large uncertainty about what the world will look like in 100 years means there is just some sort of seldom changing value baked into assets to account for this, but it nonetheless exists, and could change if there was some huge geopolitical shift.
And before you mention anyone on earth would be dead in 150 years, yes that's true, however you can always sell it to someone later on who will be alive in 150 years (or sell it to someone who can later sell it to someone etc. etc.).
It’s like food. Food in 100 years does not help the need for food now.
If there was a futures market in foodstuffs that basically keep forever and is cheap to store (honey?) you would see that the expected price of that food in 100 years would have some effect on the current price.
Those 50 years are part of the next 150, and are no easier to forecast. Most market projections are for numbers ~7% annually, but periods worse than that would drastically alter investing plans, and hence social infrastructure planning.
Another similar and popular US-data-only tool that is fun to play with is cFIREsim: https://www.cfiresim.com/
(Edit: of course, US companies have non-US revenues - helps out a bit)
Too lazy to web search for an answer, but are those real returns? (i.e. inflation-adjusted).
With a gradual decline in exposure to equities over time.
https://www.google.com/search?q=what+asset+allocation+should...
"Accordingly, as the results support, for those looking to maximize their level of sustainable retirement income, and/or to reduce the potential magnitude of any shortfalls in adverse scenarios, portfolios that start off in the vicinity of 20% to 40% in equities and rise to the level of 60% to 80% in equities generally perform better than static rebalanced portfolios or declining equity glidepaths. Though as the results also reveal, in particular scenarios where the equity risk premium is depressed, the optimal glidepath includes less equity, and in scenarios where the goal is to withdraw at a level that stresses the portfolio and its expected growth rate, higher overall levels of equity are necessary; with such high-risk goals, having a relatively high-risk portfolio, with the danger that entails, is still the optimal solution (and for clients who cannot tolerate that level of risk, the ideal solution is to choose not a less risky portfolio, but a less risky and aggressive goal). Nonetheless, for everyone else looking to maximize a sustainable income level, or determine the amount of assets to support a (reasonable) target income level, rising equity glidepaths appear to both maximize the likelihood of success and sustainable income and reduce the magnitude of shortfalls when they occur."
There is a a lot of discussion of this here: https://www.bogleheads.org/index.php. Also, this article: https://www.kitces.com/blog/should-equity-exposure-decrease-....
Why would you want to be more exposed to riskier equities (a la they are down 20% in the past year) when you are 65 years old and have no income other than dividends/bond yields?
It's entirely reasonable that we could enter a period of long, slow decline across the board. Especially as we continue to push the limits of natural resources and global supply chains.
For example suppose the US continues to move its push to return chip manufacturing to the US. This might mean both that US chip manufactures have a more healthy future than other more fragile tech companies and that they shrink in size. We could see a return of manufacturing to the US which leads to continued employment in US labor for while also meaning that labor force gets paid much less.
We're already starting to see evidence of this happening.
The concerning thing is that I'm not at all sure that our incredibly debt dependent global economy, which assumes future growth, can really handle a gradual contraction to a more sustainable economic structure.
Either way, assuming up is the only way for the market to go is a very naive assumption, but one nobody is happy questioning.
Interesting! Why is it happening? Shouldn’t labor earn more in this scenario?
Though I suspect there is more need for such labor than people who can do the job. Hard to say, but there are a lot of things we haven't automated yet.
Why do you assume that it requires a contraction to reach a sustainable economic structure?
What prevents the economy from growing for the foreseeable future while also becoming more sustainable at the same time?
Our current economic structure, due to its reliance on credit, requires perpetual growth and development in order to pay off today's debts. Debt in all forms has been growing increasingly and rapidly in recent years.
Infinite growth is not possible on a finite planet.
In many areas we are already seeing the limits of growth, from strains on oil supplies to global population growth starting to slow down. This is already, today, putting a strain on our economic systems.
Since our current way of life can only be sustained by future growth, it is by definition not sustainable unless you sincerely believe growth to be without limit (this would require near term interplanetary travel and energy advances such as fusion). As mentioned, we are already seeing system strain suggesting we are hitting limits.
Contraction is the preferable path of the two realistic alternatives, the other is complete collapse.
How do you propose the economy growth for the foreseeable future and becoming more sustainable?
I get what you are saying, but your math here is a bit off.
50+18 = 68.
People generally can live longer than 68 years old, If we go out on longevity and assume people can live to 100 or 120, then it's more like 100 years.
Your next thought is, but people will retire before/around 68, fair enough, but they stay invested generally the entire rest of their lives.
So if the US dominance ends in the next 100 years, then today's teenagers might need to care about it. People in their 30's or 40's probably don't though.
The next 150 years, you are right todays teenagers might not need to care, unless many/all of our aspirational longer living goals happen.
Yes you probably want some bonds, but you still need some equities.
The default answer is something around 20% to 60% equities in retirement.
Bonds are like buying future cash-flow, stocks are about future growth.
i.e. if you buy a bond that's paying you $25k/yr, then you will get that $25k/yr regardless of what happens to the NAV until maturity(and/or bankruptcy obviously).
Technical default versus default default.
Obviously you default temporarily enough times and people will stop thinking your promise is worth anything. So far that hasn't happened, let's hope it doesn't.
If you just want bonds, then LTT may not be the best move, it just depends. BND would be a better general bond portfolio. i.e. I dunno what I want, I just know I want bonds, then buy something like BND, since it aims to just own all the bonds.
Managed bond funds have more cost than something like TLT or BND, since they are index based. You have to pay someone to actively manage the bond ownership. Is the cost worth it? Only you can make that decision, generally speaking after fees active management doesn't usually earn extra income vs an index. The average return of active management after fees is usually under-performance relative to a benchmark index.
I think it's important to think of bonds by what they return(yearly cash flow), not by the NAV. i.e. if you buy a bond(or fund) yielding 5%/yr with $10k. That's a $500/yr income you just bought yourself. It doesn't really matter what the price of the bond(NAV) does, you will still get your $500/yr (until maturity and/or bankruptcy). Bonds are a cash-flow investment. If you want $500/yr then you buy $10k worth of 5%/yr yielding bonds.
If you want $25k/yr in income and the yield is 4%, then you need about $630k worth of those bonds(or bond fund). Buy the cash-flow not the yield or NAV. On existing bonds, the yield can't change, so the NAV/price does change. On new bonds the yield changes instead.
It's the same difference. Think about you as a person buying bonds. You have 2 choices:
* Old bond paying 5% * New bond paying 10%
Which would you rather buy? well the new bond of course, so if the person with the old bond wants to sell, what do they have to do to incentivize you to buy it instead? lower the price, so that when you buy it, you are getting around 10%/yr yield to match the new bond yield.
This is how bond markets work, in a few sentences.
Bonds are just converting today's money to future cashflow.
TIPS are inflation adjusted bonds, so you can get a real return > 0% with bonds, guaranteed by the US govt. For baseline retirement expenses, it's hard to beat. Right now they are up over 3%/yr real. You can't buy inflation adjusted annuities anymore, basically Social Security is it.
If one has 50X expenses invested, it doesn't really matter what they do, they would be hard pressed to screw it up so badly as to run out.
If one only has 20X yearly expenses invested, they need to be a lot more careful, as they might not make it, especially if they get a bad sequence of returns.
It all depends on your personal financial situation, it's hard to make general rules that can apply to everyone. It's called personal finance for a reason.
Bonds are just a great default tool, but like all tools, they are not perfect.
Also, the US stock market, US Dollar and US economy/gdp aren't hard linked to one another these days. The companies listed can be selling to non US markets, employing internationally, founded internationally. They're just listing on the US stock market because well.. that's where the stock market is. The US could, in theory, become more or less popular a stock market regardless of its currency's popularity.
Meanwhile, both the Euro and RMB have similar size markets backing their currency. Neither one is currently trying to displace the USD. I think the importance of owning the international currency is somewhat speculative.
Is there anything stopping the NYSE, Nasdaq or CME/CBOT from handling trades in another currency?
It would reduce liquidity. Equity prices would fluctuate not only on buy/sell basis but exchange rates. Sure, computers could figure all that out these days but what's the advantage? Overwhelmingly, equity buyers and sellers (not "traders") buy in their local currency because they use the money to live in a local economy.
Companies list in other countries for access to those countries' buyers. What would be the point of Shell listing in Euro on the NYSE? They want to list in dollars. Nobody outside Nigeria lists on its exchange but local companies do because local people understand the companies and everything (both their operations and their stock) is in naira.
So if you want to be an exchange in a different currency, just buy a local exchange. NASDAQ did try to buy the London Stock Exchange, though I think it fell through.
If countries then acquire dollar surpluses by running trade surpluses with the US, the US by contrast has a trade deficit. This is equivalent to having a capital surplus for the US. It means excess capital is funneled back into the US into the capital markets buying stocks and bonds.
This is maybe a chicken and egg phenomenon..is it the demand to invest in the US creating a capital surplus that creates the dynamic whereby the $ becomes reserve currency and the US runs increasingly large trade deficits? Is it the military/political power that creates all of the rest? Probably all of above. But in any case the reserve currency system has at its core the financial markets of the US that the rest of world invests their surplus into, incentivizing them to produce in excess and trade real goods and work with US in exchange for paper IOU's that they can invest into the US markets.
A big aspect of this $ financial/trade system isn't just the $ as currency itself but the unique and important position of US treasury debt as the premier reserve asset that countries store their surplus and forex reserve in, and which is the center piece of the eurodollar[0] lending markets.
The policies you describe as "idiotic" are rationally imposed. The assumption is that they will weaken Russia's war effort, and that the cost, while high, is much lower than fighting a hot war down the road if Russia is allowed to continue to invade its neighbours.
You can argue that the policies aren't working, but while looks like that in the headlines, if you look at what's going on inside Russia all the lines are pointing down, even if the government's own figures claim otherwise. You could argue that a slightly different class of restrictions could be more effective.
But the only basis for "idiotic" is if you think it's none of the EU's business if Russia chooses to invade and try to conquer one of their neighbors.
Unlike the chicken/egg situation we know precisely when this system was born: the Bretton Woods Conference, 1944.
To some degree of course it recognized what was happening anyway (uh oh, chicken/egg is back) but rather than letting things evolve it built upon emerging practice to build the modern global financial system (basically still in place despite further evolution, like floating currencies).
If you’ve been alive long enough you’ve realize the “end of US dominance” has been in headlines since the 60’s.
2. It is implausible that the US will ever pay back its foreign debts in real terms. Anyone who lends to them will end up with less stuff in total.
3. We live in an age of computers and pervasive digital communication; things can happen a lot more quickly these days than in the 50s.
4. There is a consistent trend of dropping energy security in Western countries.
This is no time to be forecasting assuming things will happen at a comfortable pace. People should have contingencies ready in case something unprecedented happens. It is tense out there.
> Money in mattress?
The response to every crisis the US has had for the last 3 decades is to print and borrow increasingly large amounts money. And they are probably the most responsible fiscal controller around at the moment.
If you see that changing for some reason then sure, maybe money under the mattress could help. I don't expect that strategy to change myself, and the last thing I'd want under my mattress is money.
> Gold is something people often make an argument for in this case but it's historical returns are pretty bad.
I don't follow, gold has been making pretty reasonable returns for about 20 years now and has been a far superior option to cash. What don't you like about it?
> What kind of contingencies? Money in mattress?
The right to live in multiple countries on a permanent basis (foreign permanent residence and/or passports) and investments that automatically balance as world markets shift over time (e.g. the worldwide equivalent of VTI: VT)
Down ~20% from peak. That is not a country drowning in cheap energy, that is a coming under a lot of pressure. Not a time to be going "eh, long term trends take a while to kick in". The long term trends have been around for a while, we're well in to the part where we start reaching tipping points and step changes.
What is going to happen? Who knows. But it could happen quite quickly.
I can imagine how that could be a second order effect of energy insecurity, but there are other explanations that seem more likely, like:
* The move from incandescent to LED lighting
* Improved insulation and heating technology
* Energy efficient appliances
* Removal of inefficient vehicles in favor of more efficient vehicles
You're going to have to do better than "per capita energy use is dropping" to convince me there's a looming threat to US energy supplies.
20% is like having no energy on half of Saturday and all of Sunday. The improvements you listed are not comparable.
Energy security is not about how much energy we do spend, but rather about how much energy we could spend, if we wanted. On this count, OP is right and the situation is still better than it used to be.
On average, we have cheap power [1]. If you're power hungry, we have some of the cheapest power on the planet [2].
The fact that coal-burning China pays more for power [3] than American industry should drive home our massive geostrategic advantage.
[1] https://www.statista.com/statistics/263492/electricity-price...
[2] https://www.eia.gov/electricity/monthly/update/end-use.php
[3] https://www.globalpetrolprices.com/China/electricity_prices/
And the US having access cheap oil is a good argument for why there might be a sudden step change in their economy - there are a lot of people with a serious interest in breaking the US dollar oil trade. Now including Russia and possibly China if they can read the writing on the wall. The US can't fight them both at once so China is in a pretty good position to get away with stuff right now if their regime survives COVID.
Cheap oil in the US has been extinct for more than a decade.
America produces more oil than ever [1]. (We also produce more energy than we consume [2].)
Your argument that waste equals production is flawed because energy doesn’t turn into production at a fixed rate [3].
> cheap oil in the US has been extinct for more than a decade
American crude is among the cheapest in the world [4]. (Bonus: look at Canadian and Mexican crude prices. Cheaper still.) Production costs aren’t Arab, but it’s way cheaper than what China pays, even before transport [5].
What makes this fantasy particularly stupid, beyond being trivially fact checkable, is that it highlights China’s strategic weakness. The same weakness that pushed Japan to bomb Pearl Harbor. The United States can strangle their economy from thousands of miles away by interfering with their shipments of seaborne crude. (Pipelines have a habit of experiencing technical difficulties in wartime.)
[1] https://tradingeconomics.com/united-states/crude-oil-product...
[2] https://www.eia.gov/energyexplained/us-energy-facts/
[3] https://en.m.wikipedia.org/wiki/Energy_intensity
[4] https://oilprice.com/oil-price-charts/
[5] https://www.statista.com/statistics/748207/breakeven-prices-...
It is hard to say exactly what that entails. Maybe the world gets lucky with a fission/fusion breakthrough of some sort - maybe even a political breakthrough to let us use proven-good nuclear tech. But in the interim it isn't easy to say that the US stock market will mirror its performance in an era where it had unchallenged dominance of a global network of easily available oil shipments. And it certainly isn't safe to say things will happen slowly. Things could start breaking and move quickly.
It hasn’t. It’s still cheap and near cheaper-still oil. Plentifully. All while its economy uses less oil, year after year, to produce one unit of production.
Is it going to get pricier? Sure. But it will get pricier for almost everyone else faster.
2. Just a few hours ago you referenced a link [0] showing that China has electricity prices sitting at half the US's. India too.
The US has lost access to a cheap form of energy and is likely going to be forced to rely on electricity going forward. I put it to you that it is by no means certain that the US market is going to be in a position where it can sustain even relative out-performance, let alone objectively good performance in line with historic figures. Depending on how optimistic we are about the communists continuing to adopt sane policies, it may even be unlikely based on the current trends.
Fortunately those trends will likely change as the squeeze the US is going through right now gets more pronounced. But the conditions we see now are simply not the conditions of the past 60 years, putting strategies based on the last ~150 years of data into a suspect light.
> America hasn’t run out of cheap oil ... all while the economy uses less oil, year after year
So cheap you can't afford to use it? I don't want to be exposed to your version of cheap.
[0] https://www.globalpetrolprices.com/China/electricity_prices/
Why would I? Everyone knows this. It’s just not a catastrophe for America.
> few hours ago you referenced a link [0] showing that China has electricity prices sitting at half the US's. India too
How did you misread “China pays more for power than American industry” as China pays less?! Look at the national price for business in China. Now look at our states’ industrial prices. Lots of variation, because e.g. New York has different policy preferences than Texas.
> US has lost access to a cheap form of energy and is likely going to be forced to rely on electricity going forward. I put it to you that it is by no means certain that the US market is going to be in a position where it can sustain even relative out-performance
This is a real argument. Thank you.
I agree it’s uncertain. The point, however, is that this won’t happen to America in a vacuum. And as it happens, it hurts others worse and first. I’d also challenge the assumption that we’re out of cheap energy [1], but that’s a separate discussion. My point is that in a world running out of oil, nobody is better positioned than America, with its domestic reserves, co-located industry and cheap electricity.
> cheap you can't afford to use it
You really can’t think of another reason we won’t use our fossil fuels?
Hint: it’s the same reason Chinese and Indian power prices are anomalously close to America’s.
[1] https://en.m.wikipedia.org/wiki/Cost_of_electricity_by_sourc...
I don't see individual states.
> You really can’t think of another reason we won’t use our fossil fuels?
The price rockets upwards and people start using less of the stuff. There are a lot of possible explanations beyond that, but it is safe to assume the obvious one that is most likely.
I'm sure you already know about https://en.wikipedia.org/wiki/Jevons_paradox but I'll link to it anyway.
> price rockets upwards
Again, where is this happening? I’ve provided numerous data points refuting this faulty hypothesis, yet you keep circling back to it.
Across the West, fossil fuels are being shifted away from for environmental reasons. India and China burn coal. That’s why Indian and Chinese power prices are even in America’s ballpark. Surprisingly, we’re finding some of the new generation methods, e.g. wind but increasingly also solar, to be even cheaper than coal and oil.
[1] https://www.eia.gov/electricity/monthly/update/end-use.php
Then use the national figures. (And China won’t. Oil is cheap in Texas because it’s pumped in Texas. China’s closest analogs are pipeline terminals and seaports. The former is like a single county’s oil production. The latter vulnerable.)
> seem from the other link you posted that average Chinese business has much better access to electricity than the average US one. India too.
America is ridiculously more electrified than either country, so “better access” is the wrong word. I think you mean cheaper?
Short answer, no. New York City adds power tariffs because they don’t want you doing power-intensive crap in the city. If you’re doing energy-intensive work, you go upstate, wheee the tariffs are intentionally cheaper. Will a shop in San Francisco pay more for power than one in Delhi? Sure. But now the energy intensity comes back to bite, because that shop in San Francisco is doing a better job turning that energy into production than the one in Delhi.
How are you getting from that to "China pays more for power than American industry"? Could you do a summary in one place? Your links seems to support the opposite conclusion but maybe you've got something going on across a few comments that I've missed.
I also went to look at the absolute numbers out of interest and China produces 8 PWh total and the US 4 PWh total according to [2] and playing around with the "Electricity production by source" graph. Although obviously that means per-capita the US is still a way ahead.
[0] https://www.globalpetrolprices.com/China/electricity_prices/ & https://www.statista.com/statistics/263492/electricity-price...
[1] https://www.eia.gov/electricity/monthly/update/end-use.php
The median American pays more for everything than the median Chinese. Including power. For electricity, particularly for households, the difference is largely taxes.
The median kWh purchased in America, however, is bought for less than it is in China because power-hungry industry happens where it is cheap. This cost difference is partly because China underproduces energy by a third [1]. It’s partly because we make power more cheaply [2]. The first gives us security. The second economic advantage. (It’s also why ditching coal and oil is easier for America than it currently is for China.)
Also, fun fact: electricity is getting cheaper in America, and has been for at least forty years [3]. (Those are household figures. No ready source for industry, but same tale, you can deflate historic prices using the PPI.)
[1] https://en.m.wikipedia.org/wiki/List_of_countries_by_total_p...
[2] https://www.iea.org/reports/projected-costs-of-generating-el...
[3] https://www.usinflationcalculator.com/inflation/electricity-...
Only if they plan on doing something akin to starting a war against Ukraine.
Based on the credit rating of the US government, they will certainly not end up with less in nominal terms.
2. No sovereign government debt is paid down in real terms over the very long run (this doesn't have to be so, but the data). So why should a non-national buy it?
If you buy US debt you get an asset that is supremely liquid and extremely unlikely to default. Over shorter terms from right now it appears likely to outperform other sovereign assets.
In very short terms at various times you can make money trading marginal countries' debt (even Argentinian!). But you take on a big risk premium for that!
3. There is so much analysis of technological advances of the 20th century that I won't even bother to try an summarize. WWII began with horse drawn artillery and ended with jet aircraft and ICBMs. My own grandmother was alive from kitty hawk to moon landings and robots spread out through the solar system. Things move frustratingly (for me) slowly these days.
4. Arrant nonsense, with the trend pointing the other way.
It's going to be a long time before some other country takes over the "reserve currency/investment market of last resort" position the US currently has. No other market is even close to providing the deep liquidity and rule of law the US market has over a wide variety of instruments.
Sure, someone will eventually take over that role, but there are no candidates today. And, to your point: it was clear by the late 19th century that the US dollar would displace Sterling, but it took another half a century for that to happen. On the scale of current human lifespan, you can assume it won't happen at all.