The Stock Market 15 Years from Now


I won’t bore you with a bunch of tables and graphs. I’ll just tell you that I’ve played around with inflation-adjusted stock-market indices (the Wilshire 5000 Total Return and the S&P Composite), and have discovered the following:

  • Internal relationships (future performance vs. prior performance) suggest that 15 years from now real stock prices will have risen at a compounded annual rate of +5 to +10 percent.
  • External relationships (future performance vs. current AAA corporate bond rate) suggest that 15 years from now real stock prices will have dropped at a compounded annual rate of about -5 percent.

The second result is based on a positive long-run relationship between the bond rate and stock-market performance. Why would there be such a relationship if an interest-rate hike usually causes stock prices to drop? Well, that’s a short-run phenomenon. But over the long run, higher interest rates mean more demand for money, which means that companies are making investments to generate higher profits. And over a period of sufficient length, like 15 years, those higher profits are realized and reflected in stock prices.

In sum, low interest rates signal sluggish business activity. Interest rates are at historically low levels, and have remained stubbornly low for a simple reason. It’s not just that inflation is low. It’s also that the demand for money is weak because the regulatory regime makes it more increasingly difficult and unprofitable for businesses to form and expand.

I see no hope for true regulatory reform, which would involve the beheading of almost every government bureaucrat in the United States. Therefore, my bet is on negative stock-market performance over the next 15 years — and beyond.

It can happen here if it can happen in Japan, where the Nikkei 225 index stands at 42 percent of its nominal level on December 1, 1989. Adjusted for inflation, the index probably has dropped about 75 percent in 27 years, which is a real  decline of -5 percent a year.

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Related reading: Jon Hilsenrath, “Yellen Points to Slow Growth and Low Rates in the Long Run,” The Wall Street Journal, June 21, 2016

Related posts:
Economic Growth Since World War II (with links to many more related posts)
Bonds for the Long Run?
Why Are Interest Rates So Low?

American Express Scores an “Own Goal”


Looking for a cash-back rewards card? Enticed by the offerings of American Express? Think twice. I’ve had an American Express cash-back card for 15 years, but I’m no longer using it. Why? Because American Express owes me three months’ worth of rewards. American Express keeps promising to bring my account up to date, but the promises have been empty ones.

I’ve switched to two other cards that offer cash-back rewards, at a slightly lower rate than I used to earn at American Express. (You can find such cards by going to this page at But the two cards offer generous bonuses ($150 and $100) for charging $500 to them in the first 90 days of use, so in the course of a year, that will more than make up for American Express’s slightly higher but unreliable cash-back rate.

Will I go back to American Express? Probably not. Even in the unlikely event that the issuers of both cards that I’m now using prove as unreliable as American Express, I’ll just try other cards with similar cash-back rates.

American Express has scored an “own goal“; that is, its own actions have prompted me to give my business to its competitors.