0% Returns for a Generation?

John Maulin contributed an article to Forbes this week.  His opening line of the article is: “The next recession is coming, and it will be severe.”  Although that statement is not all that salient there are several other points worth taking note of.

First, the so called recovery we have been in since 2009 has been the  fourth longest recovery, but it has been the absolute weakest.  Generally speaking, recoveries average 4.3% growth each year.  This recovery has had only 2.1%  That is less than half of the average. If this recovery were average we would have seen a cumulative 34% growth in the last seven years.  Instead we have experience a meager 16%.  Any questions as to why wage growth, job creation, household income, and all kinds of other stats look so meager?

Second, ” Asset prices are a reflection of interest rates and economic growth. And both are just slightly above or below zero. So, how can we really expect stocks, commodities, and other assets to gain value? The upshot is that traditional investment strategies will stop working soon. Ask European pension and insurance companies that are forced to somehow materialize returns in a non-return world of negative interest rate policy (NIRP).”  Traditional investment strategies will stop working soon?  That is a little more bold than the first quote.

Third, what about the 6.5% long-term stock return that many supposedly wise investors tell us is reasonable to expect?  According the John and his friends at GMO that is not even close to a possibility for the next seven year.

We have been at zero  interest rates since 2007.  Add another seven years to what we have been though and you are really close to having zero returns for a generation. If you ever needed to understand the need for and use of life insurance, now is the time.