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Gunnar Miller's avatar

Happy new year. Apropos long-term stock market risk and returns, over the holidays I noticed that, for the first time since 1998 and 1999, the S&P 500 produced back-to-back years of >20% total returns; in addition, for the first time since 1975 and 1976, the index generated back-to-back years with a Sharpe ratio >2.0 (implying that the investment is generating more than two units of return for every unit of risk taken). At the turn of each new year, brokerage houses all feel compelled to produce predictions for full-year stock market returns, which I find a bit ironic, as for the rest of year they can't seem to get quarterly earnings or monthly ECB/Federal Reserve meetings correct, and I'd bet that there were *zero* brokerage strategists who confidently predicted +24% for the S&P 500 and +27% for the Nasdaq 100 in 2024. This conventional wisdom likely to result after this sort of outperformance is that we're likely poised for a massive correction at worst, or flat to mediocre returns at best in 2025.

We're also doubtless about to read the annual parade of reports on how stock markets in Europe generally and the UK specifically look relatively attractive, "poised for a rebound", "bound to close the gap", etc. However, I have been increasingly concerned about the degree to which the US economy and stock markets are trouncing Europe https://www.reuters.com/markets/us/imf-lifts-us-growth-forecast-marks-down-china-sees-lackluster-global-economy-2024-10-22/ . I am reminded of a chart I once saw showing that Google and Facebook have essentially hoovered up and consolidated what used to be the collective market caps of hundreds of advertising-driven media companies. Could the US also be doing the same more broadly via Amazon et al.?

I recently wrote up my notes from my first trip to Europe in 1987 https://gunnarmiller.substack.com/p/jun-1987-european-grand-tour-journal , and recall how much more advanced Germany in particular used to appear to my 22-year-old American eyes. I remember how the likes of Minitel, ISDN, MP3s, and essentially the whole car industry, really felt like the future. Contrast this with some of my American acquaintances now starting to call us "Europoors"; Professor Scott Galloway has said something along the lines of "Europe's a great place to live, but be sure you've already made your money in America first".

One of the most damning developments has been successful European companies (Spotify, ARM, Birkenstock, etc.) no longer even bothering to list in Europe at all, and lots of established companies (Linde, CRH, Wolsely, UMG considering) opting for the NYSE; how are indices supposed to perform with all the growth companies sucked out of them? I have strong personal feelings on this, as I believe that strong local capital markets are key to capital formation and innovation which are de facto strategic assets; controversially, I think companies should be *required* to list where they were founded and have benefitted from locally-educated labor forces, if not direct government subsidies and tax breaks.

I also wonder if Europe's sort of lost the plot on productivity. I woke up early this morning to attend a recurring weekly meeting, and discovered that the year doesn't really start until next week. In the US, Christmas Day and New Year's Day are market holidays, so that's two days off; in Europe it's essentially 14. I've had a 40-year career, so (14-2 = 12 *40 = 480 days, meaning that during my career alone the US has logged in almost two more 250-day working years ... just over Christmas/New Year's. A labor-leisure trade-off indeed! https://en.wikipedia.org/wiki/Labour_supply

As someone once said, "80% of success in life is just showing up" ... so it's a great sign that you're already posting on 2 January!

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gurafa's avatar

" I post five days a week but only a mad or extremely bored person would read all of them" I AM FROM THE "EXTREMELY PERSON" and i will continue reADING YOU :)

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