Our government has promised services to its citizens that are beyond the ability of our economy to generate the tax revenue necessary to pay for them. We are just like a giant General Motors. We have promised more in benefits that we are able to pay. The numbers just don’t add up. 2+2 will never equal 5.

There are 4 possible economic outcomes.

1. Catastrophic deflation. This means a severely tanking stock market as debt bubbles continue to deflate and cash moves to pay down both public and private debt.

2. “Soft” deflation. This means a declining stock market as holders of cash continue to pay down debt despite the Fed’s likely efforts to goose spending.

3. A flat recovery. The Fed will likely attempt to spur a recovery thru inflation, which will kill the dollar and the bond market. This means a rising stock market as those who hold cash move it into the stock market.

4. A weak recovery. This means anemic stock market performance.

The key to investing for retirement is predicting the behavior of holders of cash. Predicting the Fed/Treasury response and understanding its likely impact will lead to the best decisions on how to invest for retirement – and whether to invest in the stock market at all.

Rob

He adds nothing, and is argumentative, but without any reasoning or facts to support his own contrary positions. The man is a scourge on the internet.

I don’t want to speak for Pop, Craig, but my sense is that he is saying pretty much what you are saying he is saying. He is in company with a lot of smart people saying that (as are you).

I am saying something different. I agree that stocks are not a good deal today; prices are still too high. But [i] in relative terms[/i] stocks offer a better long-term value proposition today than they have at any time dating back to 1995.

The deal gets better each time prices fall a little more. When prices get to one-half fair value (as they in all likelihood will within the next few years — we have never not seen this happen in the years following an out-of-control bull) stocks will be offering a likely annualized return of 15 percent real. We should today be helping people to learn how to recognize when stocks offer a strong value proposition so that they will be ready to pounce when a great value proposition appears before them, not playing up to the fears over stocks that people are beginning to feel all on their own.

This is my view of things, Craig. I am not God, I could be wrong. My view is a minority view. Lots of smart people think I am wrong. But this is my sincere view and, if I do not express it here, I have a strong sense that there might not be anyone else who does so. So I feel obligated to say what I believe.

I hope that we all can remain friends despite any disagreements we have on how stock investing works. I learn from you and from Pop and from all others who post here. I like to think that there might be a time when someone will read some of my words and perhaps learn something from them. I know that that will never happen unless I continue posting what I believe. So I make an effort to do that even though I sometimes get the feeling that some would prefer that I not do so (I don’t mean anyone here, but I have certainly had that feeling at other places).

We’re all in this together. We’re all trying to learn. We all learn from those who disagree with us. So we all need to say what we truly believe, to say we agree with others when we really do agree and to try to articulate our differences politely and warmly and clearly when significant differences of viewpoint evidence themselves.

My view is that we have been living through the darkest days to own stocks ever in our history from 1996 forward. But things are now looking a little better. Within a few years, I think stocks may once again be available at prices that will make them a far better long-term deal than any of the super-safe asset classes (this hasn’t been so for nearly 15 years now!). I don’t want anyone to miss out on the opportunities that may be coming because I failed to articulate the case for why stocks are beginning to look better rather than worse.

Rob

Even if stocks only return 5% it could still be one of the better investments out there. But we can’t relay only on investing anymore. As you mention Rob, we need to learn more and educate ourselves. In doing this we can find ways to make ourselves more valuable and earn more money.

I hope these estimates are wrong but I think it would be prudent to expect them to be correct.

It’s not my intent to be argumentative, Pop. You’re trying harder than just about anybody else out there. I applaud you for it.

There’s nothing wrong with the idea of people retiring later or saving more or earning more. But giving up on the stock market is the worst thing we could all do. The next stage in this cycle is for stock prices to drop to one-half of fair value as a result of us all giving up on stocks. It would be just as insane for us to let that happen as it was for us to let stock prices rise to three times fair value. If we let that happen, it would mean the loss of trillions more in middle-class wealth. It is easy to see how that would mean the Second Great Depression. Where are we all then?

The problem is not with the stocks. The problem is with the people buying the stocks. None of us really know what we are doing today. Our understanding is at a primitive level. Let’s take that as a challenge to learn, to do better in the future.

We need to do the things you are talking about. Those are positives. But we need not to give up on stocks. Learning how to invest in stocks could be a huge help to us all. I think we need to make that part of the solution here too.

Rob