Home > Economics - General > Bonds Beat Stocks in ‘Earth-Shattering’ Reversal

Bonds Beat Stocks in ‘Earth-Shattering’ Reversal

March 14th, 2009

This Bloomberg story gets the headline right., but the lead (or lede) wrong. The intro “Buying 30-year Treasuries is returning more than stocks for the first time since Jimmy Carter was president. ” is wrong – bonds have beaten stocks in quite a few years since then.

Bonds beat stocks (Bloomberg)

Bonds beat stocks (Bloomberg)

The finding in the chart is much more dramatic, to the point that “earth-shattering” is justifiable hyperbole. What it shows is that, over the entire period since 1979, a strategy of buying 30-bonds (trading so that the portfolio always holds the most recently issued bond) has outperformed the strategy of buying stocks and reinvesting the dividends.

This is earth-shattering (or, at least, potentially finance-sector-shattering) because it refutes one of the central assumptions of nearly all investment advice: that, provided you are in for the long haul, stocks always beat bonds. Robert Shiller in Irrational Exuberance pointed out that this was historically true for the US (for periods over 20 years) but not for some other markets. Now it’s no longer true for the US.

Over longer periods, there is still a substantial equity premium; that is, the return to holding stocks exceeds that for bonds. But so there should be. Returns to stocks are much more variable than those to bonds, and, as the latest evidence shows, you can’t eliminate that variability by holding stocks for ten or twenty years.

The big puzzle is, why are stocks so volatile. They are more volatile than profits which, in turn, are much more volatile than aggregate consumption (unless the current stock markets are accurately forecasting a new Great Depression).

(via Brad DeLong )

Categories: Economics - General Tags:
  1. Ernestine Gross
    March 14th, 2009 at 14:43 | #1

    Isn’t it the case that with the benefit of hind-sight one can always find two alternative strategies where one dominates another with respect to an ex-post specified criteria?

    I am not impressed.

    The literature on semi-strong form efficient markets falls into this category by showing, using past data, that ‘on average’ one could not make money on the basis of past and publicly available information. (The conclusion that therefore, the market is semi-strong form efficient is a jump to conclusion because the studies do not allow to distinguish between the set of publicly available information being ‘fully reflected’ or ‘not at all’ (Gross, 1996).

    Usually only institutions and individuals who inherit non-trivial amounts of money at a relatively early age can hold 30 year Treasury bonds to maturity.

    People who make money (or try to) in financial markets do so ‘successfully’ by moving in and out of segments of the market.

    Watch what will happen to the Treasury bond yield when the cash rate is moving to 1%. The yield is important for people with a finite life and consumption that is dependent on the returns on financial securities.

  2. March 14th, 2009 at 15:08 | #2

    Sorry, Professor, but it proves nothing of the sort. “In for the long haul” means you get to pick your selling point as you have sufficient liquidity to carry you through bad patches.
    Obviously, if you chose to sell now you would make a lesser profit than if you had done a buy and hold strategy on US T-bills, but, as Ernestine correctly points out, that sort of strategy is limited to a very few. I would completely agre with Ernestine on this one.
    Sorry, but this is one of the (few) instances where you are not only wrong, but clearly so.

  3. Monkey’s Uncle
    March 14th, 2009 at 15:17 | #3

    It doesn’t surprise me that bonds would deliver better returns than stocks during an economic downturn. But the real issue is that the returns on bonds have to be paid for at someone else’s expense.

    If governments go heavily into debt, then the debt plus interest will need to be repaid by future taxpayers.

  4. Monkey’s Uncle
    March 14th, 2009 at 15:33 | #4

    There are a number of other issues related to government bonds.

    One is that if governments throughout the developed world are going further into debt, will there be enough investors willing to invest in bonds to keep up with the escalating demand? Will interest rates have to rise?

    In addition, once it becomes clear that governments are not going to be in a position to repay their debts in future how much longer will investors be willing to keep investing in government bonds?

    When countries are unable to repay their debts they often resort to printing money. Methinks rapid inflation is on the way.

  5. Tony G
    March 14th, 2009 at 15:53 | #5

    Concur MU

    “If governments go heavily into debt, then the debt plus interest will need to be repaid by future taxpayers.”

    That is why bonds are a bad long term investment. Governments use inflation to dilute away the value of the investors dollar so when it comes time to repay that dollar to the investor, it has a fraction of its original purchasing power.

    Equities on the other hand do not have this problem. Earnings and dividends are generally in current dollars and so they are a better hedge for inflation.

    Price is what you pay and value is what you get. The intrinsic value of a business is its future earning power. For some businesses not all, the price of future earnings power is heavily discounted at the moment.

  6. Ernestine Gross
    March 14th, 2009 at 15:56 | #6

    Correction @1: Gross (1986)rather than 1996.

  7. Alice
    March 14th, 2009 at 16:04 | #7

    I guess that outperforms the Clitheroe style cliche we have all become so used to hearing in the financial adviser / fund manager drawl – “stocks beat everything else over time”

  8. Ernestine Gross
    March 14th, 2009 at 16:06 | #8

    Tony G @5, you totally ignore the privately generated debt driven bubble in equity and in some physical asset markets.

    Although the Bloomberg graph shows an equity index that is irrelevant for most small investors, it does show up nicely the growth in the bubbles since the beginning of the great leap forward back to the 19th century (Reagonomics, ….)[No typo regarding the century]. If we haven’t got the big one now then the next bubble is going to be even bigger, unless radical changes in the institutional environment (laws, regulations) are implemented soon.

  9. Socrates
    March 14th, 2009 at 16:15 | #9

    Presumably in the long term returns on equity will improve from their current position. Overall though, I presume that at present this is not a bad thing. Governments need to borrow to stimulate their economies at present, so their bonds being more attractive than equity shoudl help achieve this.

  10. Alice
    March 14th, 2009 at 16:18 | #10

    #8 Could not agree more. It takes a dog more than one shake to dry itself.

  11. Alice
    March 14th, 2009 at 16:22 | #11

    On a complete diversion, off track, and totally irrelevant to this post – I see they have made a woman called Sue Morphet, the poster girl for corporate excess in salaries. At $1.8 million p.a. Sue hardly even rates… nice one boys at the Australian.

  12. jquiggin
    March 14th, 2009 at 16:55 | #12

    “Isn’t it the case that with the benefit of hind-sight one can always find two alternative strategies where one dominates another with respect to an ex-post specified criteria?”

    Well, yes. The point of the post, which most commenters appear to have missed is that the strategies graphed are those that were typically chosen by advocates of “equities for the long haul” to make their case.

    For this case to work, contra AR, it has to be true that, provided you hold equities for at least some minimum time (ten years was the common claim) you will be ahead no matter when you sell. The point of the graph is that this is not true for anyone who bought more than ten years ago and needs to realise their assets now.

    #3 The data shows that bonds outperformed stocks over the entire period 1979-2009 (or any shorter period ending at the present). Unless you want to call the last 30 years a downturn, I think you misunderstood the post.

  13. jquiggin
    March 14th, 2009 at 17:00 | #13

    A number of commenters seem to hint at an expectation that stocks will, fairly soon, recover much of ground they have lost, so that investors who can ride out the current slump will be made whole. This can’t be right if any form of the efficient markets hypothesis (even weak form) holds. Weak form efficiency says that stock prices are a random walk, so the Dow doesn’t “remember” it was at 14000 a year ago. The best estimate of future price (based on stock prices alone) is the current price plus the long-term growth rate for stock prices.

    Let’s suppose that the equity risk premium is at its historical level of 6 per cent and the real bond rate is 1. That means investors are expecting stocks to rise at about 7 per cent a year, so that the Dow should return to 14 000 (about where it was in 2000) by about 2019.

  14. Tony G
    March 14th, 2009 at 17:01 | #14


    What about this earnings bubble;

    Overall Gain – 1964-2008…..362,319% pdf

    He is not broke yet and I am pretty sure anybody who bought in with him in 1965 is glad they didn’t put their money into bonds at the time.

    He buys bonds from time to time, but I think that would endorse what AR said @ 2.

    P.S. for what its worth, (to him and his investors a lot) he doesn’t believe in EMT, but he loves making money from those that do .

  15. Monkey’s Uncle
    March 14th, 2009 at 17:19 | #15

    #12, point taken. I actually had to rush out and pick up some groceries, so I only had a brief look at the article.

    The only other thing I would reiterate is that the returns on bonds are only real or sustainable if one believes that governments are likely to be capable of generating the future surpluses needed to repay debt and interest. Given the future financial pressures governments will face, I don’t think that is a realistic assessment.

    This gets back to my other point that if governments are unable to pay their debts or borrow more money, eventually the only option is to increase the money supply and thereby inflation destroys the return on bonds.

    The point is that the notional returns on bonds cannot be real unless you have confidence in the ability of governments to repay. Otherwise they are merely promises put off into the never-never.

  16. Alice
    March 14th, 2009 at 17:26 | #16

    JQ notes “A number of commenters seem to hint at an expectation that stocks will, fairly soon, recover much of ground they have lost”

    In this sort of market, and with so many losses still monumentally accummulating, Id be very wary of the dead cat bounce.

    The 1929 crash had a pretty good dead cat bounce. Its ok if you can stalk and pounce like a cat.

  17. Monkey’s Uncle
    March 14th, 2009 at 17:28 | #17

    Tony G says “That is why bonds are a bad long term investment. Governments use inflation to dilute away the value of the investors dollar so when it comes time to repay that dollar to the investor, it has a fraction of its original purchasing power.”

    Tony, that is why if any individual or institution is to lend money to governments the sensible thing to do is to either lend the money in a foreign currency (thereby preventing an increase in money supply to repay the debt), or add an inflation adjustment to the terms of the bond.

    Most investors currently financing bonds are getting neither of those two conditions.

  18. Socrates
    March 14th, 2009 at 17:34 | #18

    Tony G

    That is just anecdotal evidence. What about the many stocks that have been wiped out returning -100% to investors. It is no more fair to argue in favour of stocks by picking a single case than to judge the issue by running the analysis at isolated points in time that favour one class or the other.

  19. Monkey’s Uncle
    March 14th, 2009 at 17:40 | #19

    Another point regarding the relative returns on stocks versus bonds is that the returns on bonds cannot be sustainable unless stocks recover.

    If stocks remain weak, this must have an impact on government revenues (like capital gains tax, company tax). Moreover, a weak stock market is often indicative of broader economic weaknesses that would have to impact on government revenues like income tax.

    In this situation, governments would certainly continue to run significant budget deficits. This raises the question of where will the money come from to repay the debts governments are currently running up?

    It seems that for bonds to outperform stocks consistently over the long-term, the private sector economy would have to remain weak but at the same time governments would have to find some way of raising the revenues to fund expenditure plus service their debts.

    I can’t see how this is sustainable.

  20. Alice
    March 14th, 2009 at 17:48 | #20

    Its that one shoulder of a head and shoulders or is it twin peaks I see in that world stocks line -either way its volatility is enough to put me off.

  21. SeanG
    March 14th, 2009 at 18:31 | #21

    I am not really shocked by this at all. Exceptionally high volatility in equitites, combined with risk-aversion, has lead to the spike in bond prices. This is not earth-shattering.

    Even with the argument that in the long-term equities outperform bonds. All that has happened is that we have extrapolated 30-years worth of data after an significant shock to the system has occurred. When the risk appetite comes back the equities will shoot up again.

    MU is correct about the concern for inflation. My view is that we will see it hit in the recovery. But there are always investment strategies for the institutional investor to be protected from this.

  22. Bruce Littleboy
    March 14th, 2009 at 20:02 | #22

    On bonds and paying off the resulting deficits:

    If a government is trying to appropriate resources beyond the country’s sustainable capacity to supply, fine, later inflation erodes the real value of the government debt. But if the deficits were used to fund WW2, it’s churlish to complain about the erosion of the debt.

    What if it’s to help stop the Great Recession turning into the Great Depression? So long as there are idle resources, the debt can be met from the higher income resulting from reactivitating the economy. As income rises, the amount saved rises and so does the level of taxes harvested. Much of the deficits are self-funding in this particular case.

  23. Ernestine Gross
    March 14th, 2009 at 21:09 | #23

    Sean [email protected] says: “All that has happened is that we have extrapolated 30-years worth of data after an significant shock to the system has occurred.”

    No. There wasn’t a “shock to the system” but an endogenous break-down.

  24. SeanG
    March 14th, 2009 at 21:17 | #24

    Never before in the history of humanity has there been such additional risk taken on by the market – it is a shock to the system.

    This is a shock to the system, the like of which we have not seen for over sixty years and this has fed the fear factor causing a flood into the bond market. I do not disagree that this type of creative destructionism is endogenous to the capitalist system but the nature of what we are experiencing is a shock to the system.

  25. Ernestine Gross
    March 14th, 2009 at 21:21 | #25

    Tony G @14,

    Your link refers to data for the
    Berkshire’s Corporate Performance vs. the S&P 500.

    The data shows that the point about the limitations of long-term performance data for finitely lived individuals holds even if a ‘waste not-want-not’ guy like Warren Buffet has a say.

    There is no ‘bubble’ in this data. All it shows is that Buffet did better than those who trust in S&P selected companies.

  26. SeanG
    March 14th, 2009 at 21:22 | #26


    The massive increase in government borrowing is not resulting in idle resources being used. All it is doing is funding poorly targeted stimulus packages. You are overestimating the multiplier effect of the stimulus package and assuming that the government has perfect knowledge of where the idle resources are in the economy.

    Inflation will be looking to pick up after this crisis but what will happen is that institutional investors will demand more inflation-linked bonds by government and corporations. This reduces the dampening impact inflation has on the debt capital markets but will ultimately require strong and consistent anti-inflationary fiscal and monetary packages. This

  27. Monkey’s Uncle
    March 14th, 2009 at 22:10 | #27

    Sean @ 21, good point.

    If one is to compare the long-term average returns of bonds and stocks, it does seem somewhat selective to pick a point in time where stock values are unusually deflated as the end-point for the long-term comparison.

  28. Monkey’s Uncle
    March 14th, 2009 at 22:26 | #28

    One of the obvious problems here is that in any economy the cost of raising finance cannot be consistently greater than the value of returns generated by other economic activity. If it was, no-one could afford to borrow money and service their debts.

    For example, how could someone running a business afford to borrow money to expand their operations if the returns on their investments were not enough to even pay the interest?

    So it is hard to see how investors lending money can sustainably expect higher returns than other forms of investment, when the ability to repay the debts and interest is ultimately dependent on the ability of the rest of the economy to generate economic returns sufficient to service those debts.

  29. March 15th, 2009 at 00:01 | #29

    Can you link to anyone making this claim? The one where “provided you hold equities for at least some minimum time (ten years was the common claim) you will be ahead no matter when you sell”.
    If so, I would submit they have a total ignorance of history. there have been several periods of time where this has not been the case.

  30. Paul
    March 15th, 2009 at 03:32 | #30

    @29 Jeremy Siegel in “Stocks for the Long Run” looked at the worst returns for stocks and bonds in the US for various periods from 1805-1998. This is measured in real terms (inflation adjusted).
    10 years 20 years 30 years
    Stocks -4.1% +1.0% +2.6%
    Bonds -5.4% -3.1% -2.0%

    Alot of people now are going to pull money out of the stock market and stop investing new money there. That means many would have bought when the market is high and sold when it is low. Not the best result.

    Robert Shiller in the book that PQ referenced showed a strong (but obsviously not strict) correlation between low market PE levels and good 10 year returns. The PE levels are starting to get pretty low now. I would think that as long as you are investing for 20+ years, there would be few times as good as the present to invest.

  31. jquiggin
    March 15th, 2009 at 06:05 | #31

    Thanks for the Siegel cite, Paul, which answers AR’s question. For the US, a 30 year period (or even a 10 year period) in which bonds outperform stocks is indeed something new.

  32. SeanG
    March 15th, 2009 at 07:24 | #32

    BarCap released some research (I haven’t got a hard copy) that measures +/- variance in equities and fixed income products over the short to long term. Equities tend to outperform bond returns over a 30-year time horizon.

  33. Ikonoclast
    March 15th, 2009 at 07:30 | #33

    So long as the current form of capitalism continues some will always have shares in others’ bonds.

    I remember when the 2nd Iraq war was in the offing and the market was a bit sluggish. A bloke at work said, “I wish it would start so my shares will pick up.”

    Apparently my response was bad form, “Oh, so you want people to die so you can make money?” It earned me frowns all round the meeting table before the formal meeting began.

  34. Alice
    March 15th, 2009 at 09:42 | #34

    33# Ikono – dont you hate that? You cant state the obvious. .. sometimes….without being silenced by sets of knitted eyebrows!

  35. SeanG
    March 15th, 2009 at 09:42 | #35

    Your point? The guy was thinking – my retirement is being hit because of something thousands of miles away, my family are dependent on my future and it is being negatively affected.

    What type of utopian vision do you have of the world?

  36. SeanG
    March 15th, 2009 at 09:44 | #36

    My above comments were mean for Ikono

  37. swio
    March 15th, 2009 at 10:39 | #37

    Robert Shiller in the book that PQ referenced showed a strong (but obsviously not strict) correlation between low market PE levels and good 10 year returns. The PE levels are starting to get pretty low now. I would think that as long as you are investing for 20+ years, there would be few times as good as the present to invest.

    I’ll bet that Shiller was referencing PE ratios based on “actual” earnings. This is a problem for anyone trying to buy stocks based on this thinking as we don’t know what the “actual” earnings will be over the next 12 months or few years. We only have projected earnings, which during a recession are likely to be constantly downgraded. For example BHP is currently on a PE of about 11. Sounds like reasonable value. But who knows if their profits might halve over the next couple of years? In which case they are really on a PE of around 22. Even if they fall by 25% the PE is really about 15.

    Historical research on buying companies when their PE is low is based on a historical record of actual earnings and hence actual PE ratios. But at any point in time PE ratios available to investors are just projections. Schillers work might have produced a different result if it was based on the projected PE ratios at the time an investor would actually have to make a decision, not the hindsight of what the earnings and PE’s actually turned out to be. Interesting questions that could be addressed would be how many companies that had good looking projected PE’s actually went bankrupt? These would not show up in his research as they never had subsequent earnings for them to be judged on. And how would an investor who based buying decisions on projected PE’s at the time have done? Even over the last year or two you could have lost half your portfolio buying companies with low PE’s that had subsequent earnings downgrades.

    You can’t buy a stock with solid foreknowledge of what its PE will be, which makes quite a bit of the research around buying low PE’s invalid.

  38. Bruce Littleboy
    March 15th, 2009 at 10:57 | #38

    #33 34

    Perhaps the politeness we hope for on this site should be extended to the workplace.
    I think that frowns are justified when black humour by a co-worker is met by righteous naivete, as, by the sound of things, it was.

    During one of the gulf wars, the demand for gas masks skyrocketed, and I chirpily remarked “It’s an ill wind…”. I was happy with grimaces and groans, responses that once were regarded as sufficient and appropriate — as well as sought. Nowadays I’d likely get a PC sermon from someone attributing views to me that I do not hold. Even in direct speech around a meeting table, layers of irony are missed by at least somebody.

  39. Bruce Littleboy
    March 15th, 2009 at 11:15 | #39

    #26 SeanG

    Sure, models exaggerate. This is true of Keynesian models and classical models. But if the globe imparts fiscal stimulus, multipliers will be larger than usual (there are no global import leakages, of course). The national multipliers routinely trotted out are somewhat irrelevant.

    Keynesians don’t need perfect knowledge about idle resources. Near enough is good enough. Though in a modern world this is trickier than in the 1930s. Back then, we could infer that the unemployed needed soup. Do todays unemployed “need” Foxtel? Back then, unemployed ship builders could switch from cargo ships to battle ships. Today, governments cannot really buy coal and iron ore to make up for the missing exports to China and Japan.

    I have no problems with inflation-linked bonds (good idea, actually), esp. if they are based on demand inflation, and preferably not on supply shocks, oil prices etc.

  40. March 15th, 2009 at 11:51 | #40

    No Way! DOW 36000 is around the corner. Just you wait.

  41. March 15th, 2009 at 11:57 | #41

    [irony alert disabled]

    Bonds may not hold up indefinitely, although I havent been checking the yield curve or volatility lately. A bond market bear would throw the comparison out a bit.

    Just because equity markets have collapsed does not mean the last asset market devaluation. We have already also seen (USD valued) commodity, currency and property market crashes. Can security (ie bonds) be far behind?

    What if US interest rates rise due to inflation or PRC unwillingness to take up or rollover bond issues? Then US T-bond values will fall, leaving investors cupboards totally bare. (Unless they have substantial hoards of gold or other collectibles.)

  42. March 15th, 2009 at 12:41 | #42

    jquiggin Says: March 15th, 2009 at 6:05 am

    Thanks for the Siegel cite, Paul, which answers AR’s question. For the US, a 30 year period (or even a 10 year period) in which bonds outperform stocks is indeed something new.

    Buffet is buying up stocks big time. But he is one of the few guys on earth who can defy Keyne’s maxim: “the market can stay irrational longer than you can stay solvent.”

    Interesting chart from Motley Fool tracking US equity returns in 10 year periods since the turn of the 19thC.

    10-Year Period (Dow Jones Average Return)

    1998-2008 (9%)

    1988-1998 (331%)

    1978-1988 (165%)

    1968-1978 (19%)

    1958-1968 (77%)

    1948-1958 (226%)

    1938-1948 (14%)

    1928-1938 (49%)

    1918-1928 (254%)

    1908-1918 (60%)

    The past decade (1998-2008) where stocks were being swelled up by baby boomer superannuation-pension plans, cheap money by the FRB and extraordinary churn through computerised trading platforms has been the worst for one hundred years. Not to mention endless spruiking and touting by the “financial community”. Phrases like “Greater Fool” and “Even Break, Never Give a Sucker” come to mind.

    Now any choice of base year or period span is somewhat arbitrary. Sure, measuring from peak to trough is unsound. Maybe there will be a spectacular recovery over the next decade.

    The thing that sticks out is the explosive stock growth in the decade succeeding the US’s great world-historical military victories.

    1919-1928: 254% – WWI
    1948-1958: 226% – WWI
    1988-1998: 331% – Cold War

    I cant see the US repeating these kinds of sensational feats of power anytime soon, unless their sci-tecchies pull something out of the bag.

  43. Alice
    March 15th, 2009 at 13:20 | #43

    I think its time for a bit of history and a quote or two;

    “Neo-classical or neo Keynesian economics, though providing unlimited opportunity for demanding refinement, has a decisive flaw. It offers no useful handle for grasping the economic problems that now beset modern society. And these problems are obtrusive – they will not lie down and die as a favour to our profession. No arrangements for the perpetuation of thought is secure if that thought does not make contact with the problems that it is presumed to solve.”

    Nice to see someone else noticed the flaw, as long ago as 1972. Its a longer quote – too long for here.

    JK Galbraith “Power and the Useful Economist” Presidential address delivered at the 85th meeting of the American Economic Association, 29th December, 1972 as cited in Wheelright E.L., “Capitalism, Socialism or Barbarism..”. preface.

    According to Wheelright, “orthodox” economics suffers from the constricted methodology argument. The methodology used is too narrow to permit realistic results; behavioural assumptions too shaky; there is neglect of non economic factors and social situations, excess reliance on technique for its own sake and premature and excessive mathematisation, the role of power is ignored and the role of conflict downplayed.

    Yet as Galbraith also notes

    “A powerful tendency in modern political economy is for the voice of the affluent, and that of the business spokesperson in particular, to be mistaken for the voice of the masses… Unless economists understand that our subject is intrinically contentious – that what is good for the poorest of our people is best for economic performance – our economic policy will be a failure.”

    On Australia’s future, Wheelright noted (1978) “In so far as market forces are allowed to dominate, Australia faces further integration into the world capitalist economy and disintegration of its own national economy and society. An additional twist in this direction will be provided by built in higher levels of unemployment, to which we are already being conditioned.”

    Wheelright was correct. Those built in higher levels of unemployment have well and truly arrived. Underemployment and casualisation masks the lie that is unemployment. In all the discussion on Workchoices and the legislative changes in process – there is not one mention of the word “casual” or the great numbers of ordinary Australians now employed in this manner.

  44. Alice
    March 15th, 2009 at 14:06 | #44

    In terms of the collapse of the financial markets we have just witnessed, an interesting emphasis was made by Minsky and others (c.1970s) on liquidity problems – each time there is a crisis in a long run credit cycle, there is a substantial residue of debt left, so that a robust state of liquidity is never restored. The expansion and collapse of credit is used by the market to correct contradictions or imbalances such as under or overinvestment, yet also amplifies the long run economic cycles, so that any such “cure” (the aftershock of the credit collapse) may be worse than the original disease. Given an increasing residue of bad debt – this view would suggest each credit collapse will be worse than the one preceding it.

  45. Tony G
    March 15th, 2009 at 15:23 | #45

    Ernestine Gross @ 25 and Socrates @ 18;

    AR @ 2 said

    ““In for the long haul” means you get to pick your selling point”

    My link to Buffets returns enforces what AR said. Buffet gets to pick when and what he buys and sells.

    Timing is everything because it also means you get to pick your buying point.

    This article “Buffet on the stock market” expands on the correlation between bonds and stocks and their interaction with interest rates over these bear and bull periods;

    Page 2;

    • Dow Jones Industrial Average
    Dec. 31, 1964: 874.12
    Dec. 31, 1981: 875.00;
    ?• Dow Industrials
    Dec. 31, 1981: 875.00
    Dec. 31, 1998: 9181.43

    It also highlights why a simple buy and hold strategy for common stocks will not work.

  46. Tony G
    March 15th, 2009 at 15:27 | #46

    Alice re 43

    In the 1970s you could support a family quite comfortably on one income. Now you need 2 incomes to support a family.

  47. Ernestine Gross
    March 15th, 2009 at 17:51 | #47

    Tony G @45, Good for Buffet. My point is that if you were an investor in Berkshire Corporation, to which your original link referred, then you would have lost about 9.6% in value in 2008. During that time, you could have made a positive rate of return on bank deposits. (I am not stating a rate because I can’t be bothered looking up US data.)

    The data you have provided suffers from the same limitation as that of other selective data sub-sets mentioned in this thread. Such selections are often done for promotional purposes or out of ignorance.

  48. Alice
    March 15th, 2009 at 18:24 | #48

    Tony #46
    For once we agree on something although I suspect it was the post war years through 1960s to only very very early 1970s that that applied (you could support a family one oe income). I really dont think women entered the labour force in the 1970s in such large numbers because of “women’s liberation” or “freedom to choose.” I suspect the money needed to be put on the table.

  49. Alice
    March 15th, 2009 at 18:40 | #49

    Actually, I will correct that last comnment. It applied in the pre war years too. One income could support a family (yet in the great depression we aso saw women working more)…as I suggested in some other post – when the going got tough, women in history were more likely to enter the labour force or start businesses of their own – boarding houses etc yet even that seems too derogatory, there were many were ordinary and quite entrepreneurial businesses started by women in history).

    Some called women and migrants “the reserve army labour force” (called in when needed and discarded when not needed) but this role, I fear has been shifted to the growing legions of casual workers (but then more likely to be dominated by women and migrants or aboriginies still ie those at the bottom of the labour force food chain) meaning, not white and / or not male.

    Either way the equality of female income distribution in history behaved in the opposite way to the equality of male income distributions. Male equality declined in downturns, female income equality improved. More of us get hired, hence more participated in downturns – for whatever reasons – necessity? Cheaper substitute for male wages? Just for additional income for a family in bad times?.

    But there is little leeway now as you suggest – it takes two incomes to pay an average city mortgage in good times or in bad. Who do you send to work to supplement the family incomes in downturns – there is no-one. They are already both working. The risk of debt or debt default is higher on the household in current times, exacerbating hardship when firms are shedding labour; exacerbating cummulative bad debts.

  50. nanks
    March 15th, 2009 at 19:14 | #50

    Alice – “Who do you send to work to supplement the family incomes in downturns – there is no-one.”

    You send the children – there has been an enormous increase in child labour over the last 20 years. The service industries thrive on the labour of children.

  51. Tony G
    March 15th, 2009 at 21:44 | #51


    We are not talking about a one year return; The post is about long term buy and hold stocks verse government bonds.

    The bloomberg graph shows bonds in 1980 @ 100 and 2009 @ 1900 (approx) or about 11% pa compound growth rate.

    The Buffet figures (presumed as accurate as bloombergs) shows the long term S&P with dividends (40+ years) @ 8.9% pa compound growth rate. (Link @ post 14)

    The figures show government bonds out performing the S&P 500. 11% to 8.9% pa compound growth rates.
    Where is the ‘earth Shattering’ reversal in that?

    JQ said;

    that, provided you are in for the long haul, stocks always beat bonds. Robert Shiller in Irrational Exuberance pointed out that this was historically true for the US (for periods over 20 years) but not for some other markets. Now it’s no longer true for the US.

    Shiller is wrong, stocks do not always beat bonds, in fact bonds beat stocks some times and visa versa.

    From “Buffet on the stock market” link @ post 45 page 4;

    At its beginning, for example, between 1900
    and 1920, the country was chugging ahead,
    explosively expanding its use of electricity,
    autos, and the telephone. Yet the market
    barely moved, recording a 0.4% annual
    increase that was roughly analogous to the
    slim pickings between 1964 and 1981.
    • Dow Industrials
    Dec. 31, 1899: 66.08
    Dec. 31, 1920: 71.95
    In the next period, we had the market boom of
    the ’20s, when the Dow jumped 430% to 381 in
    September 1929. Then we go 19 years–19
    years–and there is the Dow at 177, half the
    level where it began. That’s true even though
    the 1940s displayed by far the largest gain in
    per capita GDP (50%) of any 20th -century
    decade. Following that came a 17-year period
    when stocks finally took off–making a great
    five-to -one gain. And then the two periods
    discussed at the start: stagnation until 1981,
    and the roaring boom that wrapped up this
    amazing century.
    To break things down another way, we had
    three huge, secular bull markets that covered
    about 44 years, during which the Dow gained
    more than 11,000 points. And we had three
    periods of stagnation, covering some 56 years.
    During those 56 years the country made major
    economic progress and yet the Dow actually lost 292 points.

    Nanks and Alice

    So, if we are more productive due to productivity gains that have occurred since those times, why do we need more people working and not less to support a family?

  52. Ian Gould
    March 15th, 2009 at 23:34 | #52

    “In the 1970s you could support a family quite comfortably on one income. Now you need 2 incomes to support a family.”

    Tony, were you even alive in the 1970’s?

    I was. “living comfortably” in the 1970’s involved stuff like eating out on birthdays and wearing hand me downs. For a teen, owning a transistor radio or a tape recorder was a major status symbol.

    Know many people who live like that these days?

  53. March 16th, 2009 at 00:05 | #53

    And how much was that 50″ plasma TV then? Bet it was a lot cheaper, huh.
    You are flogging a dead horse here. For a few weeks (or even maybe a few months) the HTM value of a government stock play is greater than the aggregate returns on the stock market over the same period. So what? Does it mean that for the other 29 years and however many months that we should all have been in stocks? Nonsence. Ever investor has their own view of risk and return and their own time horizons. If you are in for the long haul sitting in a broad spread of stocks is a good play. You get out gradually as you are approaching retirement – selling the more volatile ones first and then gradually moving into more secure investments, such as (yes) government bonds or fixed term bank deposits.
    The big puzzle is not “…why are stocks so volatile.” That is simple – they are priced according to many, many factors – and, more importantly, how people view those factors. As the factors change so do the prices.
    Prices do not forecast anything. People do that.

  54. Alice
    March 16th, 2009 at 06:21 | #54

    Ian Gould # 52 Didnt you read that people are living in tents outside Sacramento with their imported appliances (music payers and TVs) inside the tent?
    Who’s idea is that we measure wealth by the number of cheap imported appliances we own. Harvey Norman’s?

  55. nanks
    March 16th, 2009 at 07:29 | #55

    Ian Gould – I was over 20 by the end of the 70’s and I don’t recall life being so reduced. But it is interesting that you describe quality of life in terms of consumption. The rise of a culture of consumption is a feature of the last few decades.

  56. SeanG
    March 16th, 2009 at 08:15 | #56

    narks – do you miss the inflation? or the unions striking?

  57. SeanG
    March 16th, 2009 at 08:16 | #57

    Sorry, that was meant to be addressed to nanks.

    Consumption is not everything – but it is a good barometer for a standard of living. Are we better off today than we were in the 1970s? Is the rise in the standard of living over the last thirty years better than the rise in the standard of living over the preceding thirty years?

  58. nanks
    March 16th, 2009 at 08:23 | #58

    I miss them terribly SeanG – but most of all I miss the stultifying monoculture. Joking of course – I’m not nostalgic for the 70’s, I don’t remember them them with much fondness at all. But I don’t think things have improved much – they’ve just become different. I think it was Les Murray (poet version) who described Australia as ‘a bit of a lemon’ and that’s pretty much how I see it. In my view, the 60’s to 70’s (Dunstan to Whitlam) opened up great opportunity for an equitable and productive society. That opportunity was then thrown away.

  59. March 16th, 2009 at 08:30 | #59

    Ian Gould Says: March 15th, 2009 at 11:34 pm

    Tony, were you even alive in the 1970’s?

    I was. “living comfortably” in the 1970’s involved stuff like eating out on birthdays and wearing hand me downs. For a teen, owning a transistor radio or a tape recorder was a major status symbol.

    Know many people who live like that these days?

    In the latter part of the 70s the major items of neccessary household budget were incredibly cheap by todays standards. Accommodation, education fees, transport are always the Big Ticket items. My strong impression is that these are much more expensive now than they were then. I just cant be bothered doing a weighted Laysperes hedonic inter-temporal comparison to prove this.

    And improvements in these services, although appreciable, are not that great. (If anything, transport has gone backwards in terms of time efficiency.) Metro accommodation is vastly more expensive per capita per area unit.

    Food is about the same. Theres more of it now (too much!) but diets were perfectly adequate in the 70s. No doubt clothing is better and cheaper now. Although I dont remember anyone getting around in rags in those days.

    Health services are the one neccessary area where improvements are really impressive. Although costs have doubled, covered by higher taxes.

    For sure consumer entertainment and communication appliances are both much cheaper and much better. If this is your main standard of living criteria then we are all far better off.

    Of course there are alot of not altogether happy single, childless people out there looking for a bit of company, going by the plethora of dating sites. So perhaps we should not be to quick to look down on the olden days of the seventies.

  60. Tony G
    March 16th, 2009 at 09:18 | #60

    Ian Said;

    “Know many people who live like that these days”

    Yeah my teenage kids do, they have replaced the transistor for an ipod but they don’t get the benefit of free universal health care, free uni, toll free roads or a lower tax burden.

  61. costa
    March 16th, 2009 at 09:30 | #61

    In my opinion the whole stocks for the long term is bogus unless you seriously look at what price you pay in terms of value and the alternatives on offer at that time.

    An interesting chart with a few bubbles:

    1) two equity type bubbles in late 90’s and 2006
    2) perhaps a government bond bubble today?

  62. O6
    March 16th, 2009 at 10:20 | #62

    No. 60, income taxes were more progressive in the 70s i.e. relatively low for the low-paid, relatively high for the high-paid and rich, hence good for younger people. There wasn’t any CGT, however, and I’m interested that most of the discussion of the two bubbles illustrated in PrQ’s chart ignores CGT, which hugely influences share buying and selling for individuals. Instos have a 3 month time horizon, so income (company) tax and CGT are interchangeable, but individual long-term investors (except the super-rich, for whom tax is optional) CGT can be very significant.

  63. Ernestine Gross
    March 16th, 2009 at 11:02 | #63

    Tony G @ 51. Yes. However, I understand there is also agreement that ‘with the benefit of hind-sight one can always find two alternative strategies where one dominates another with respect to an ex-post specified criteria’.

    This agreement does not contradict the proposition that the graphs in the Bloomberg graph are ‘those that were were typically chosen by advocates of “equities for the long haul” to make their case.’ However, it indicates that advocacy of this type is not always successful (with old sceptics like myself).

  64. Ian Gould
    March 16th, 2009 at 11:55 | #64

    “Yeah my teenage kids do, they have replaced the transistor for an ipod but they don’t get the benefit of free universal health care, free uni, toll free roads or a lower tax burden.”

    Do you own a VCR or DVD player?

    A personal computer?

    Got home internet?

    how about cable TV?

    How many cars does your family own?

  65. Tony G
    March 16th, 2009 at 12:52 | #65

    regardless of a few materialist tokens you mention, important essentials were much cheaper back then.

    Total government tax revenue was between 21% and 25% of gdp and included a lot of the since privatised services, houses were 3.5 times the average annual wage as opposed to 10+ now, rents were cheaper, we didn’t have stretches of roads that collect tolls every few kilometres. Health care was free, Unis were free, we had infrastructure that could actually cater for the population of the time.

    Do you honestly think the bureaucratic mess we are handing over to the next generation is an improvement on the seventies?

  66. Michael of Summer Hill
    March 16th, 2009 at 17:52 | #66

    John, if I may reply to jack strocchi by saying Warren Buffet doesn’t have to worry about paying tax for quite a while given his capital gains losses. He is in a different league than the ordinary joe blow. Furthermore, Buffett has issued a challenge to his fellow billionaires “I’ll bet a million dollars against any member of the Forbes 400 who challenges me that the average (federal tax rate including income and payroll taxes) for the Forbes 400 will be less than the average of their receptionists”. Just like Buffet I didn’t want to spoil the big end of town’s fun.

  67. Alice
    March 16th, 2009 at 18:31 | #67

    Tony # 60 comments on living poor in the 00s
    “Yeah my teenage kids do, they have replaced the transistor for an ipod but they don’t get the benefit of free universal health care, free uni, toll free roads or a lower tax burden.”

    Tony, I agree youth is now part of the new casual reserve labour force.

    As for living better in the 70s. I could afford to rent a unit with mys sister, two bedrooms and in the heart of chatswood on a nurses wage and a 1st year public servants wage. We could eat out a couple of times a week, do maccas for Sunday breakfast, buy new clothes, furniture, pay bills, go to the disco (arrrrgh – when disco was so popular) and still save. Possible now?

    Uni cost nothing (later), public health was free and decent, we ran two cars and we were just under and just over twenty, respectively.

    Whos kids are still at home or living like church mice at that age?

  68. Oldskeptic
    March 16th, 2009 at 18:32 | #68

    Well said Tony G. I remember the 70’s well. reqasonale pay, reasonable taxes, free education, etc, plus not all the indirect ripoff’s, like bank charges, speed cameras, etc, the whole tax by stealth bit. Actually by 1982 I was actually better off in inflation adjusted, tax adjusted terms than I’m now.

    Bought a UKP25,000 house which was only 1.4 times my wife’s and my earnings. Plus all the free (which I enjoyed) education etc.
    Me? I think the last 30 years had just been a giant ponzi scheme.

    About stocks. Depends when you buy. If you bought at the peak in 1987, for example, you had a long, long wait before you broke even in $ terms, let alone inflation adjusted dollars … that is if the ones you bought didn’t become worthless (lot of companies went under then).

    Did a technical analysis for a company I worked for in NZ. the volitility of the market was such that there was a 20% pa chance of us not meeting our S&P rating …we switched to bonds forthwhith.

    BHP at 11 P/e is rediculous. First mining companies have very volitile earnings, so they should trade at 6-8 on average. Plus take BHP’s earnings .. half them, probably half them again over the next few years.

    = BHP should be 33% of where they are now … and just wait until they cut their dividend .. several times.

    If you are Joe Soap you are a mug to invest in the share market (yet another reason why I still hate Keating), let alone all the insider trading/corruption/etc.

    Just another way to take money out of my pocket and put it into someone else’s .. which pretty much sums up all the whole neo-liberal rubbish we have had to endure over the last 30 years.

  69. Alice
    March 16th, 2009 at 18:39 | #69

    Most people managed to get rid of their kids in the 70s into share flats and units or houses by early twenties.

    Come on, own up all you parents. Who still has their kids living at home into well into their twenties..?

  70. Alice
    March 16th, 2009 at 18:50 | #70

    Jack, Im with you. The last thirty years…a giant ponzi scheme…… I remember even before that, my mum was the first woman to get a job in our whole street about 1967. I had strict instructions to ensure by siblings got their afternoon tea before Mum got home at 4.30pm. Reason for second job? Dad could afford a second, second hand car but not quite the running costs. Mum desperate for second car instead of nightmare weekly shopping trip with three rowdy kids on bus (parcel or two each) and Dad playing tennis every weekend (not much help with shopping from sport obsessed males). Car bought, Mum got a job to put petrol in the second car (and have more holiday money) not to pay a monstrously huge mortgage.

  71. Oldskeptic
    March 16th, 2009 at 19:04 | #71

    Yeh Alice, we actually left home then (I went out with my girlfriend at 18). We wanted to be independent. It helped that education was free, so a kid didn’t start life underwater with debt. You know, we actually spent money our children then.

    Watching kids hang around home in their late 20’s, even 30’s is scary. Either society really is a lot poorer now, or there has been something added to the water to turn normally energetic, rebellious, creative, etc kids into drones.

    Jesus, did the Borg invade and we didn’t notice?

  72. March 16th, 2009 at 19:25 | #72

    I left home when I was 17…to live with my grandmother! Stayed with her till I was 20 whilst studying. What a piker!

    Was then physically removed from the premises by friends who insisted that I move out properly, or else my non-designated driver privileges would be revoked. That was the signal to get a licence and car.

    My arrested development was the subject of many derisory comments from said mates who moved out as soon as they got to uni. Made up for it when I got the lease on Mandalay, legendary flat next to the Espy.

    The notion of staying with mom till age 30 would have been inconceivable to anyone who came of age in the seventies. I assume the major reason for this womb-clinging behaviour is the staggeringly high cost of accommodation within half-hours commute from decent metro pubs and clubs. And full-fee education.

    So pretty clearly the students standard of living – measured by free-wheeling lifestyle – has declined since the seventies. And it shows in their rather conservative demeanour.

  73. Ian Gould
    March 16th, 2009 at 20:07 | #73

    “Health care was free, Unis were free, we had infrastructure that could actually cater for the population of the time. ”

    Medibank was introduced in 1972 and abolished in 1975.

    As for the infrastructure of the time – anyone remember the old Bruce highway?

  74. Alice
    March 16th, 2009 at 20:19 | #74

    73# Is the old Bruce Highway all you have to offer Ian? Not as many cars then – what did we care? If the Bruce Highway was the only traffic jam, it sure beats the one most of face every peak hour getting to work in Sydney now. My petrol and time in this traffic jam, costs me a damn sight more than the Bruce Highway ever did.

  75. Alice
    March 16th, 2009 at 20:37 | #75


    “Jesus, did the Borg invade and we didn’t notice?”

    The borg did invade. Its called cost of living for kids. I dont mind saying I rented my first room in a share terrace at North Sydney on a waitresses wage and tips for 6 months before I went nursing (not far from the water and visited friends my age in a waterfront block of apartments – yes renting – one per bedroom, not six).

    The borg did invade on the poor kids and they cant go anywhere now – need help until they are thirty.

    But how do you get rid of them (kids)? Certainly, its not in my mother’s handbook to advise my kid to go play the stockmarket with his paper run money….. My Mum wouldnt even go guarantor for my first car loan and the bank wanted one, so the parents went to the suburban C’Wealth Bank for a big showdown with the manager where the family had banked for twenty years. No guarantor required and loan granted. You couldnt do it now.

  76. nanks
    March 16th, 2009 at 20:52 | #76

    I think you can overstate the money thing for kids staying at home. People/parents are often more tolerant now. Alice, how would you have gone if you’d brought a boyfriend home for a few weeks – or a girlfriend for that matter? No big deal anymore. I think it is a good trend that kids stay at home longer – historically it is the norm for kids to be around their parents most of their lives.
    The teen rebellion thing is oversold, in the 60’s and since I think it was a con that helped usher in consumerism by playing up to (flattering) teenagers so that they could be manipulated and exploited.

  77. Ian Gould
    March 16th, 2009 at 21:58 | #77

    Quick question for tony – is it your serious position that Australians were better off in the socialistic nanny-state days of Gough Whitlam; compulsory unionism; regulated interest rates; high tariffs and fixed exchange rates than we are after thirty years of deregulation; “economic rationalism” and neoliberalism?

  78. Alice
    March 16th, 2009 at 22:22 | #78

    Nanks # 76
    I never saw it as a “rebellion” that was oversold. It was just that most people moved out earlier than they do today – I dont think it was the boyfriend thing either – love always finds a way no matter what generation doesnt it? – Even if they went to uni straight after school students I knew then, could still somehow afford to rent (working part time etc) and lived closer to the uni. It was just more accepted. Its what they did. In the generations before they still left early to get married didnt they?

    Do I think youth were better off in the 1970s?. Yes I do and I actually think a lot of other people were better off then as well despite neo liberalism pushing the “greed is great because its means youve got iniiative, and we all bow down to big business for they are the one and only source of great wealth (so hand your money over to them, and watch it gurgle down the drain lately) and if you are not rich its because “you havent got it in ya to work in an iron lung” attitude of recent decades.
    I dont like it at all. Its been grating on my nerves for a decade or more, that something just isnt quite right with the standard media patter.
    As a matter of fact I think we would have been better off living without all the neo liberalist claptrap.
    We were not living anywhere near a 5% unemployment rate (not counting underemployment and casualisation) like we are now even when unemployment spiked at 6% idue to the oil crisis -this was a one off. It averaged 1% in the post war decades up to that crisis.

    5% is now embedded as a norm in unemployment (which is a lie of figure now anyway with people working casually and fewer hours). The number is a error on the very very conservative side and we should all get used to it???.


    We have only twenty million people or so in this country. Its not big. We shouldnt be stretched. We have a lot of resources relative to a lot of other countries. So where do the mining profits go? Here in jobs (some – sure) or do the great majority of big business profits go straight out of the country to some tax haven or mother company in this globalised deregulated environment we live in?

  79. Ian Gould
    March 16th, 2009 at 22:23 | #79

    http://www.abs.gov.au/AUSSTATS/[email protected]/Latestproducts/0485BB5550FE5799CA25732C00207C77?opendocument#THE%20LONG-TERM%20TREND

    “Expressed in real terms (at 2004–05 prices), household final consumption expenditure per capita rose from $10,400 in 1960–61 to $26,100 in 2005–06. The magnitude of this real increase (152%) suggests that we enjoy a much higher standard of material wellbeing than we did in the early 1960s.

    Growth in real household final consumption expenditure per capita was particularly strong between 1992–93 and 2005–06. After rising by 1.9% a year between 1960–61 and 1992–93, real household final consumption expenditure per capita increased by 2.6% a year between 1992–93 and 2005–06.”

    http://www.abs.gov.au/Ausstats/[email protected]/Previousproducts/1301.0Feature%20Article152001?opendocument&tabname=Summary&prodno=1301.0&issue=2001&num=&view=

    I refer the reader to table two
    “HOUSEHOLD DISPOSABLE INCOME PER CAPITA,in 1999-2000 Prices- 1959-1960 to 1999-2000” which shows per capita disposable income rose from approximately $15,000 in 1975 to approximately $22,000 in 2002.

    note that this is the disposable income per capita
    i.e. income after tax and it’s a measure of income not expenditure so this isn’t simply a matter of increased consumption being funded increased borrowing.

  80. Tony G
    March 17th, 2009 at 00:01 | #80

    “Tony, were you even alive in the 1970’s? I was. ”

    Ian, If you lived through the seventies and can remember it, you weren’t there. “the socialistic nanny-state days of Gough Whitlam” were only an aberration in over 30 years of Liberal reign.

    ‘Reminiscing about the ‘good ol’ days’
    No offence intended, but the conversation on this thread is starting to sound horribly like something you’d hear in the waiting room of a retirement village. It is only on step away from reminiscing about Menzies legacy.

    “The last thirty years…a giant ponzi scheme……”

  81. Ian Gould
    March 17th, 2009 at 01:01 | #81

    Yes, because people in retirement villages always support their arguments with links to ABS statistics.

    And that “aberration” is solely responsible for the free medical care and free education you’re so nostalgic for.

  82. Ian Gould
    March 17th, 2009 at 01:04 | #82

    Oh by the way Tony “compulsory unionism; regulated interest rates; high tariffs and fixed exchange rates” apply equally to to the Gorton, McMahon and Fraser eras.

  83. Oldskeptic
    March 17th, 2009 at 05:39 | #83

    5% unemployment? Make that 12% (after you add back in the ones who have given up looking, underemployed, on empairment benefits, etc, and all the other ways Govts have fiddled the numbers), plus add in the, roughly, 800,000 people living and working overseas, who if they all came back would raise the unemployment rate to the 20% region.

    Australia has not been able to generate enough jobs for its rapidly rising population for decades now.

    You know all those tarriff cuts we made and all the benefits we would get and all the new businesses that would be generated?

    Never happened. All we did was dump a lot of people onto permanent welfare of one kind ot another and a lot of those who could, went overseas. Basically the old Irish economy (circa 60’s), with some (rapidly running out in many cases) minerals, plus rapidly running out agriculture to boot (tick, tick, tick, at 25M people our food imports and exports balance, after that we are a net importer, though GW is making that 24M, 23M …).

    Got a lot of debt though and really expensive, for the moment, houses. Almost makes up for the 100 year old train tracks.

    Ponzi I call it.

  84. Monkey’s Uncle
    March 17th, 2009 at 07:46 | #84

    As far as younger adults staying at home longer, I agree that this is an unhealthy trend. Everyone needs to learn to stand on their own two feet, and break away from a parent-child relationship.

    That said, it also must be considered that in light of the current economic circumstances Australia has the highest levels of household debt to average income, and the highest house prices to average income, in the developed world.

    If all the late genXers and genYers had left home and taken on mortgages, the level of personal debt and inflated real estate prices would be even worse than it is today. In that sense, everyone should thank a 30yo guy still living with his parents for the fact that we are not facing an even worse financial crisis.

    It’s crazy that younger generations have to choose between either slitting their own throats or being permanently infantilised.

  85. nanks
    March 17th, 2009 at 08:19 | #85

    I cannot see how living at home with parents equates to infantilising. How has this been the case with most cultures throughout history, where living with parents in a small band or village has been the norm? Achieving autonomy in any productive psychological sense is not dependent upon distance from parents.
    Regarding infantilising – I would claim that the trend to valorize youth from the 60’s on has been a primariy driver. By reducing the authority of experience it has been possible to convince people that they, and they alone, are the site of relevent knowledge. Superficial becomes authoritative.
    A slick combination of flattery and misinformation (the tools of marketing) then allows for manipulation of preferences and purchasing habits.
    “Teen rebellion”, “making your own way” and other individualistic mantras play into the hands of exploitative capitalists and marketeers.

  86. Alice
    March 17th, 2009 at 09:31 | #86

    Ian at 79 # This “aggregate” for household consumption expenditure says nothing whatsoever about the division of the deciles who spent it (yes, the inequality aspect), nor does it say anything about housing costs over time and nor does it mention that from 1990 to 2005, every decile of Australian taxable income earners has share to the top decile of taxpayers who rose from 24.26% share to 30.13% outstripping every other decile of taxable income earners in Australia. This 30.13% is also conservative because it doesnt include the vast array of tax minimisation and avoidance techniques employed by those with the wealth to pay expertise to get them out of paying tax. You can put your aggregates up but they show very little and you are right “they indicate only” and more likely indicate a very superficial view, that is that the only the richest amongst are likely to be contributing to this so called rise in real consumption expenditure (and conspiciously so).

  87. Alice
    March 17th, 2009 at 09:32 | #87

    I meant “every decile lost share to the top decile.”

  88. Alice
    March 17th, 2009 at 09:45 | #88

    83# – Thanks Oldskeptic – I agree – according to todays papers make that unemployment rate 10% and this is good – yet business is still calling for migrants, no revisions to workchoices, flexible so they can use people like disposable tissues, offer no security except an endless stream of contracts even if they do actually graduate to part time, and take the gains to pay themselves obscene salaries. Its indecent. They still whinge about unfair dismissal but I worked in the 1980s when we had it and it only took three warning letters to avoid the legislation – and it was no big deal. These days I am hearing about people being forced to electronically agree to contracts before their pay rates even show on screens, people being forced to sign performance reviews without “comments boxes” being completed by employers. This sort of behaviourby employers to employees is indecent and bullying (and is only to cover their own backsides legally if there is a dispute – everything done with lawyers in mind) and I would suggest does little to help productivity at all. As for unions, whilst they attempt to look after the rights of the permanently employed a growing pool of casuals outside their scope or their interest is growing under their foundations and more of their members are falling ingto that pool.
    Its not a healthy way to run a workforce at all, but the greed of employer and industry lobby groups now knows no bounds. They never stop whinging. They have had 30 years of labour regulations lifted off their precious businesses and they still persist in the use of bullying tactics over employees.

  89. Alice
    March 17th, 2009 at 09:47 | #89

    and 10% is not good. Its hideous.

  90. Alice
    March 17th, 2009 at 10:07 | #90

    And no part of any per capita consumption measure is any good unless you know which group of “per capitas” consumed the most. Mortgages?, Petrol? Woolies? Coles? or “Moet?”.

  91. nanks
    March 17th, 2009 at 10:15 | #91

    To what extent is consumption an indicator of quality of life and happiness in countries like Australia? I am not sure the link has been demonstrated. Furthermore, even if such a link were demonstrated, is a consumption driven mechanism the most efficient?

  92. Monkey’s Uncle
    March 17th, 2009 at 16:59 | #92

    Regarding Ian’s point, it is no doubt true that average incomes (inflation-adjusted) have increased substantially since the 1970s.

    But as with many statistics, things like average incomes or GDP don’t tell the whole story. There are limits to the extent that these factors determine standard-of-living.

    For example, inflation-adjusted income doesn’t fully consider the increase in housing costs (as purchasing a home is a capital investment, not a good or service).

  93. Oldskeptic
    March 17th, 2009 at 17:53 | #93

    Yes, on average, AWE has risen faster than CPI (as opposed to the US where it has gone backwards), but:

    (1) The CPI does not reflect true costs, remember the famous “let’s take out interest rate impacts” from Messr Keating, because interest rates were getting to high.
    Now that is a fiddle, the single biggest item of expenditure for many people … excluded?

    (2) We all have to pay for things that used to be free in the past, to wit higher education as the poster child

    (3) Segmenting out different employment groups shows a different picture. Last time I looked, people like “Private Advanced clerical and service workers,”production and transport workers”, and a few others had been barely holding their heads above the CPI water.
    Some, like labourers and basic clerical/service workers have gone backwards.
    Worse if you are a part timer as well.

    (4) Depends what you buy. The headline CPI is a basket. If your expenditure mix is different from that (and it almost certainly will be), then you can be ahead or backwards. For example, if you like a drink then that has exceeded AWE growth for quite a while (education I already mentioned).

    (5) After tax income. If you are average Joe Soap you have not done well at all over the years, don’t Govt’s love bracket creep. But if you were mostly in the top tax bracket in (say) 1980 (60% if I recall) you have done very nicely in after tax income.

    So, some groups in society have done well, others definitely have not. And if you are unemployed (or underemployed) then you have really gone backwards (such as all those pesky clothing and textile workers we got rid of). The even more fiddled inflation rate used by the Govt for benefit index increases greatly understates true inflation and hits them even harder.

    Add it all up and a fair proportion of the population has gone out of the door, a reasonable number has gone backwards, another amount has held their heads above water, some have done reasonably well and a small group have laughed all the way to the bank.

    Oh, yes inequality has risen in Oz as all the figures show.

  94. Alice
    March 17th, 2009 at 22:51 | #94

    Tony G # 65
    This must be the first thread where we have agreed on something (the comparison to the 70s)

    “regardless of a few materialist tokens you mention, important essentials were much cheaper back then. ”

    “Do you honestly think the bureaucratic mess we are handing over to the next generation is an improvement on the seventies?”

    The only thing we may not agree on is the cause. I think its the mad policy direction, you think its the bureacracy. Maybe we are not that far apart (but one thing is for sure, now its the mess of the economy).

  95. March 21st, 2009 at 21:12 | #95

    Sorry, Alice – oldskeptic’s analysis is just as dodgy as ever.

    5% unemployment? Make that 12% (after you add back in the ones who have given up looking, underemployed, on empairment benefits, etc, and all the other ways Govts have fiddled the numbers), plus add in the, roughly, 800,000 people living and working overseas, who if they all came back would raise the unemployment rate to the 20% region.

    1. So – we should add into the unemployed figures all of those who are not actually unemployed? Makes a nonsence of the numbers.
    2. We should also add in the number of people living overseas as unemployed in Australia. Odd. Does this also mean we should also remove from the employed figures those who have migrated here? Do we also count them as unemployed or do we simply ignore them completely? Again, nonsense.
    Let’s look again at the 1970s, guys. Wonderful clothes. Women knew their place – at home with the children. Gays had to be determinedly in the closet. Foreigners largely kept to themselves – and hardly anyone ate their food. Lovely times.
    As for the reasons of the current problem (such as they are) – I would agree it is the mad policy direction, Alice. Massive and increasing taxation, massive and increasing regulation, massive and increasing bureaucracy.
    Anything I missed?

  96. nanks
    March 21st, 2009 at 22:04 | #96

    as far as the 70’s goes Andrew it was a time of social change in Australia – from a very narrow and conservative society to one that no longer persecuted much that had been persecuted before. Of course the mainstream remained conservative – expecting more rapid change is unrealistic – but a trajectory of social reform was clear, particularly in Sth Australia.

    Of course these changes were not uniform and their trajectory has since been crushed. We are a much worse society for not having politicians of the calibre and outlook of Dunstan

    form Wikipedia:
    “Dunstan brought profound change to South Australian society. His progressive reign saw Aboriginal land rights recognised, homosexuality decriminalised, the first female judge appointed, enacted consumer protection laws, relaxed censorship and drinking laws, created a ministry for the environment, enacted anti-discrimination legislation, and implemented electoral reforms such as the overhaul of the upper house of parliament, lowered the voting age to 18, and enacted universal suffrage. He established Rundle Mall, and encouraged a flourishing of the arts, with support for the Adelaide Festival Centre, the State Theatre Company, and the establishment of the South Australian Film Corporation. Federally he assisted in the abolition of the White Australia Policy. He is recognised for his role in reinvigorating the social, artistic and cultural life of South Australia during his nine years in office, remembered as the Dunstan Decade.”

  97. March 22nd, 2009 at 01:49 | #97

    My point exactly. The wistful dreaming of the 70’s from some of those above discloses some seriously rose coloured glasses.

  98. Alice
    March 22nd, 2009 at 07:53 | #98

    The unemployment number is a nonsense when you consider underemployment by time series data (which I note is only available on request to the ABS unlike most other labour force statistics). Perhaps those ‘seriously rose coloured’ glasses are preferable to the green tinted ones of those who obviously arent old enough to recall the 1970s and think they live in the best of all possible worlds now.

  99. Alice
    March 22nd, 2009 at 07:58 | #99

    Andrew –

    Massively increasing risk in the financial system due to massively irresponsible global and domestic financial deregulation, massive abuses of corporate responsibility, massive fraud and ponzis schemes, massive tax evasion, massive growth in offshore tax havens, massive increase in electronic transference of the proceeds of crime and now a massive collapse of stock markets around the globe and a massive increase in unemployment in many countries.

    Anything I missed Andrew?

  100. Chris O’Neill
    June 16th, 2009 at 14:21 | #100

    What it shows is that, over the entire period since 1979, a strategy of buying 30-bonds (trading so that the portfolio always holds the most recently issued bond) has outperformed the strategy of buying stocks and reinvesting the dividends.

    The problem for ordinary punters is that they cannot get the average rate of return of 30 year bonds in their bonds-based super fund or anywhere else either. The graph shows an average rate of return from 30 year bonds of about 9% per annum while investors in bonds-based Australian super funds won’t get any better than the return they can get from cash-based funds which itself is not much better than 4% per annum for the last 15 years.

    So sure, 30 year bonds do quite well compared with international shares but that is of academic interest only for average Australian super fund investors.

Comments are closed.