GBCWall Street -- Journal Declares 10 Year Failure

The buzz on all the cable money channels is today's headline in The Wall Street Journal. And, boy are the pundits depressed. Grab a box of Kleenex and check out CNBC.

Stocks Tarnished By 'Lost Decade'

U.S. Shares in Longest Funk Since 1970s;  Credit Crunch Could Prolong Weakness

Over the past 200 years, the stock market's steady upward march occasionally has been disrupted for long stretches, most recently during the Great Depression and the inflation-plagued 1970s. The current market turmoil suggests that we may be in another lost decade.

The stock market is trading right where it was nine years ago. Stocks, long touted as the best investment for the long term, have been one of the worst investments over the nine-year period, trounced even by lowly Treasury bonds.

Do you know how much this sucks? If you have a retirement account, you probably do. Let's look at some charts:

For the past nine years, the Standard & Poor's 500-stock index has fallen 0.37% a year, and for the past eight, it is off 1.4% a year.

When dividends and inflation are factored into returns, the S&P 500 has risen an average of just 1.3% a year over the past 10 years. Folks, that's so far below inflation (dollar devaluation) it could make a CPA cry.

Because I understand fundamentals, I assure you that the era of disappointing returns has just begun. A portfolio adjustment is probably in order, if you are holding equities.

Over the past nine years, the S&P 500 is the worst-performing of nine different investment vehicles tracked by Morningstar, including commodities, real-estate investment trusts, gold and foreign stocks.

Big U.S. stocks were outrun even by Treasury bonds, which historically perform much less well than stocks. Adjusted for inflation, Treasurys are up 4.7% a year over the past nine years, and up 5.8% a year since the March 2000 stock peak. An index of commodities has shown about twice the annual gains of bonds, as have real-estate investment trusts.

The Wall Street Journal is generally an enthusiastic shill for the stock market, so this is a hard one to swallow for the talking heads. The female pundits have chewed off their lipstick and Cramer is assuring the audience there is not going to be a run on Citibank. Wut? Who even asked about that?!

Yale economist Robert Shiller, who predicted the market trouble in his 2000 book "Irrational Exuberance," warns that the market still hasn't shaken off its excesses. He and some other analysts think the latest volatility is a symptom of more trouble to come.

"I have to say that this isn't a great time to be in the stock market," says Prof. Shiller. "The housing crisis that we are going through is going to put a damper on the economy that is longer than a recession. I don't see the stock troubles ending as quickly as many people are imagining."

The bottomline is actually in the global markets, today. The Central Bank in the European Union announced that they were not going to lower interest rates at about 3 AM this morning. Here's what that means if you're wearing your Secret Decoder Ring:

Europe [but not the UK] has just told the world they are decoupling from the US economy because they are not vulernable to our credit collapse. And don't intend to help us.

Meanwhile, money manager, David Merkel, writes a reaction to today's WSJ frontpage, Bracing for a 'Lost Decade'. It's a so-so look at what investors shoulda, woulda, coulda done to help their retirement portfolios. He also gives some tepid, unimaginative advice on what you can invest in next.

Oh, By the Way -- Here's How They Pwn'd America

In order to hide the devastating effects of Bush's tax cuts in 2001 -- Greenspan slashed interest rates to one percent. Everyone who owned a home refinanced to a lower rate, took out all their equity, and spent it on all kinds of consumer products.

As a result, Americans suddenly had a negative savings rate for the first time in history. Then, Greenspan hiked interest rates 13 times in a row until everyone lost everything, including their pension funds (which most Americans haven't figured out yet). That's really what the subprime crisis is all about -- the moose out front shoulda told ya.

Here's what the economy would look like if folks weren't tricked into refinancing their assets and blowing their savings in the retail sector to hide the effects of the tax cuts for the wealthy. Pay attention to the red bars. That's the real GDP:

The End.

Literally.

Also published at Docudharma -- A clean, well-lit place to blog.