This a topic that is, or should be, on the minds of everyone and there are plenty of posts within this site and other sites, articles, etc. The problem is I don't think anybody has any clue - I certainly feel that I don't. And not because people are not intelligent or generally don't understand the concept. On one hand there could be no better time in history to invest in whatever, on the other hand maybe not - I have no idea. The problem is that all assumptions are based on history and if anything the last decade has demonstrated that things work differently than they used to. Case in point is that the governement has dumped so much into the system, rates are ridiculously low, liquidity is more than plentiful and yet there is no real hiring, GDP growth is slow, housing is still terrible, etc.
The thing is there are several factors that I think make it different this time (none of which are original).
1. Two decade long bull market in bonds (i.e. ever declining interest rates).
2. Globalized economy (mostly Asia).
3. Boomers - large population/two incomes.
4. Declining Taxe Rates
5. Increasing Debt Loads
The government helped screw this up - when everything was good and all the stars were aligned for prosperous economic growth it continued to expand and increase the deficit, which only got worse when the shit hit the fan. It used to be that when times were good the government reduced or at least reduced the debt burden and when it was bad it turned on the spigot. Also do the math on $13Trillion in US debt at 3-4% on average - even if the debt doesn't increase and the rates double the US will default. Ouch.
The combination of the above resulted in a extremely prosperous time that allowed tangible asset values to rise but inflation was largely kept in check because imports of cheap crap increased exponentially, technolgical advancement, and the declining interest rates offseting the increased debt loads. I am sure someone will point out the latest data that food is a lower portion of budgets now than 50 years ago but keep in mind that with imports, modern seed and fertilizer technology, and equipment the yield per acre/animal is far greater than what it was then and combined with our processed food rich diet has caused food deflation over that period.
The single biggest risk is rising rates and increased debt burden. The good scenario is if rates rise because of an improving economy, but if they rise because debt is deemed too risky (a la europe) watch out. If you bought a house in 1990 you would have needed a down payment and the interest rate would have been 9% for good credit - do the math on a $100K mortgage it would be a $804/mo payment. Today at 4% it would be $477/month - helps offset inflation. This goes through to everything that was or could be financed with some for of debt (oh wait that is our entire economy). Some will say that the housing collapse rigthed the problem and we are back to normal price levels - I agree with this as it was regression to the mean - look at a chart of housing prices and draw a line it it would seem we are back to a normal level but now we have to factor in the low interest rates. So we are staring at increasing interest rates, increasing taxes, a boomer population that is approaching retirement (not that they will be able to), the boomer kids (gen y, millenials) are all unemployed (partly because their parents can't stop working), technological efficiency, a deleveraging environment, etc. I don't want to be a naysayer but it is an uphill battle - housing prices may have bottomed but they aren't going anywhere for a decade and that is simply due to rates - contrary to popular belief though I still think homeownership is engrained in us and that will provide support for the market.
To me it feels like we are heading into an environment of stagflation or possibly a mix where basic goods and food inflate higher than normal but tangible asset prices are flat or maybe decling.
A long post but I am curious as to the thoughts - as I said I don't have a clue. I am tired of the direction we are headed (both sides of the political isle contributed equally to this mess and most likely will continue to do so).
