End of 30 Year ‘Golden Age’ of Stocks and Bonds Signals Tough Times Ahead

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End of 30 Year ‘Golden Age’ of Stocks and Bonds Signals Tough Times Ahead

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16:33 01.05.2016(updated 22:21 01.05.2016) Get short URL

The decline and even reversal of the forces driving exceptional investment returns over the past 30 years means that returns on Western equities and fixed-income investments could be considerably lower in the coming decades, with serious consequences for pension funds and young investors, according to a report from the McKinsey Global Institute.

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A so-called “Golden Age” of investment based on a unique set of circumstances has come to an end after 30 years and will be replaced by lower returns on equities and bonds over the next two decades, according to business and economics research firm McKinsey Global Institute (MGI).From 1985 to 2014 total returns on equities and bonds in the United States and Western Europe were significantly higher than the long-term average, driven by an extraordinary confluence of favorable economic and business fundamentals, MGI reports.

These include sharp declines in inflation and interest rates from peaks in the late 1970s and 1980s, and strong global economic growth fueled by positive demographics, productivity gains, and rapid growth in China.

“Corporate-profit growth was even stronger, reflecting revenue gains in new markets, declining corporate taxes, and advances in automation and global supply chains that helped rein in costs. Publicly listed North American companies alone increased their posttax margins by 65 percent in this three-decade period,” MGI wrote.

The analysts also predicted the returns on investments in the United States and Western Europe over the next two decades and found that in both regions average annual returns for equities could be 1.5 to 4.0 percent lower.

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For fixed-income investments the gap could be even larger, 3 to 5 percentage points, and in some cases even lower than that.

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A future of low returns could create even larger gaps in pension funds than today, since most pension funds are still assuming relatively high future returns of about 7.5 to 7.7 percent, before adjusting for inflation.

“A two- percentage-point difference in average annual returns over an extended period would mean that a 30-year-old today would have to work seven years longer or almost double her savings to live as well in retirement,” MGI wrote.

A sustained period of low returns could also have a broader economic and political impact, if, for instance households were to raise their savings rate substantially to make up for the shortfall in investment returns. This could depress demand, additionally hindering growth and exacerbating the effects of low returns.

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Sometimes Capitalism doesn't work for the individual capitalist but as long as they can extract the difference from the working class the whole rotten edifice will continue to be propped up by the floor jack of imperialism.

Sometimes Capitalism doesn't work for the individual capitalist but as long as they can extract the difference from the working class the whole rotten edifice will continue to be propped up by the floor jack of imperialism.

Right. The capitalist class doesn't just eat the lower classes, it eats itself. "Competition" is among capitalists and there has to be losers. So, for a while there will be fewer billionaires? Who cares? Not the left-over billionaires - more for them. Anax always said that capitalism will not collapse on its own; it must be brought down, from below. So no matter how far the bottom drops, no matter how bad things get for everyone, the capitalist class will continue to feed until it is herded into the slaughter house...

Speaking of the devil or floor jack:

Some Notes on the Circuits of Imperialism

The hypothesis put forward by John Smith in Imperialism in the 21st Century is to me vital: wage differentials between nations are militantly defended through various means of devaluing labor in the periphery and propping up wages in the core. The periphery is terrorized so that labor can become so cheap as to be, in many cases, nearly free or existing in a pseudo-legal state for the production of “dark value” so that the surplus value thereby obtained can be transferred to the core through the raised living standards (increased “value” of labor) strongly skewing the normal process of equalization of the rate of profit between nations. Instead of profit being equalized through averages globally, the wage differentials mean that value produced in the periphery is sucked up by the core and then deployed through commercial and state circuits to build up the superstructure of imperialism – the defining superstructural apparatus, and primary factor in the formation of other apparatuses, of our time.

It needs to be emphasized that while we live in a totality of capitalism, this totality is characterized by imperialism not in a superficial way, but is essentially structured by imperial processes at every step. Liberals referring to capitalism with various qualifiers not only perform the mistake of seeing capitalism as in need of these qualifications, but in missing that the entirety of the capitalist world economy is an imperialist world economy, and every single economic mediation that occurs is one characterized by and formed through circuits of imperialism.

The surplus taken in by companies benefiting from the low labor prices established by imperialism goes into the massive imperialist state machine as it’s taxed at various steps in its circulation, as well as the ever-growing NGO machine funding through philanthropic organizations and the like (in some ways this is functionally the ruling class taxing itself voluntarily to either avoid or have more leverage in determining government influence), so that the surplus can be absorbed in a cycle of destroying societies, establishing super-exploitable societies, and funding the various human and mechanical technologies for doing so (that are often used extraordinarily inefficiently without a real care in the world, or even not used at all). While this is of course done to establish, on the one side, hegemony, it’s also done just simply to realize surplus value. And this point is critical, because it’s this massive machinery that mediates the immanent crisis of overproduction that expresses itself in various ways with its oscillations and fluctuations (always visible most superficially through financial crisis, as Marx determined).

And, of course, this is also all to ensure that no competition to the imperial hegemon can realize itself and that any that can eak out a middling existence (e.g., BRICS) has its sources of profit as mediated by imperial capital (here referring triad of the US, Western Europe, and Japan) as possible. The imperial system cannot hold back its world-wide war of terror for these two reasons – it cannot afford to do so for a day. The delaying of economic crisis is a double-motion of creating commercial circuits to keep accumulation going and to ensure the realization of value in the global North to maintain the wage differentials and legions of unproductive workers that allow for the level of accumulation seen in the these states (which are the major factor in determining the nature of global class war and the moral laziness of core workers), as well as directly developing the military and ideological machinery that enables this process to take place and that makes up a significant part of that process itself (e.g., the incredible money a person who works overseeing an engineering project at Raytheon or a former CIA analyst at Palantir makes). It’s also worth noting the growing convergence of the increasingly privatized mediation between the state and the masses is occurring between the military-industrial complex and the more traditional NGO-imperial complex (e.g., educational programs) both within imperialist states and abroad.

It’s not just that the war on Syria is against an enemy of the United States, it’s that the United States also needs to have these armies of ideological apparatus functionaries, NGO workers, engineers of various sorts, and intelligence and military personnel to have money to spend to keep the rate of circulation (and therefore capital accumulation) at a respectable clip. Syria is of course only the most visible of the theaters for this style of imperial circulation. The wage differentials between the direct imperial economic forces and the oppressed workers of the periphery is again formative of the relation here, and allows for ideological infiltration through, for instance, refugee camps administered by imperial NGOs with the backing of the UN (frequently used for recruitment for terrorist outfits as well as mediating labor mobility).

Refugees are also the major creator of internal wage differentials, creating displaced populations that force wages down in some sectors while moving the additional surplus value to the managers, financiers, and rentiers. This allows for goods (especially luxury goods) to be exported from and between imperial centers while workers in many cases function in a kind of pseudo-legal (or even illegal) gray economy that escapes labor laws (producing the aforementioned “dark value”), which here serves as another method of perpetuating these wage differentials.

To push the point home further, it’s these wage differentials, combined with the various means by which finance/monopoly capital captures and spreads value, that allows for the extraordinary surplus value being circulated by the class of protected managers and workers in the core.
There are several links in the imperial circuit that can’t be moderated because of these factors – the extraordinary debt accumulation in imperialist nations, the spending on government services (especially military), the permanent attempts at (and often oscillating between) color revolution and death-squad terror in all resisting territories (or even if only potentially resisting), the near-universal control of information in the imperial core and as far elsewhere as possible, the NGO-imperial complex, the privatization of the mediation between government spending and the population, and the maintenance of control of movement of workers to maintain wage differentials between the core and the periphery, as well as within the core.

All of this should be seen in their interconnections to get an understanding of what the relations being perpetuated in something like the wars on Syria and on Yemen are. These are, again, two-sided: domination of the periphery and realization of surplus value in the core.

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