As long as their isn’t a natural or un-natural calamity, i.e. nuclear fallout or an asteroid strike, over the long haul the stock market should rise.

10 years however is not the long haul. If I had to, I would speculate a higher market in 10 years, but if history teaches us anything it’s that stock market returns within a 10 year time frame are still quite volatile and don’t have to spell growth.

If, however, interest rates make a swift (ie. ten year), large move upwards to the low or mid-teens, it would put tremendous pressure on valuations and keep the markets flat because stocks would have to offer higher returns at that time, meaning lower prices relative to their future cash flows.

That is, of course, from “rational” level to “rational” level — temporary bubbles and panic aside.

As to the number of people in the markets, that will affect prices in the short-term, creating bubbles and panic levels. In the long-term, the price of a company is not affected by how many people hold the business, only by how many are pushing the outstanding shares around on a daily basis.

In “normal” market conditions, they wouldn’t be beating JNJ down to $10 a share. So, in “rational” market conditions (from a broad perspective), a company would be expected to trade right around its intrinsic value whether its daily volume was 1,000 or 1,000,000.

Remember: The markets are mostly efficient, except in times of pure fear and greed.

The only reason why the stockmarket would be up is because those selling and buying stocks, as a group, perceive businesses as a group to have a greater value.

This change of perception would cause those selling and buying stocks to negotiate higher prices.

I think it is safe to say the current market is fearfull. Publicly traded businesses as a group are perceived to be risky operations. It is not unlikely that in ten years time, there will be a more favorable perception of business value.

The DOW for a large part represents a slice of the GLOBAL economy. I agree with JC’s conclusions though.

http://www.chrismartenson...

Let me know if you enjoyed the link. Otherwise I wont bother in the future.

TIM

Why?

A mass influx of investors can account for the bubble of 1999; but, why would it have grown by leaps and bounds from 1981 through, say, 1987. Standing still in 1981, most investors were looking back over the past twenty years and seeing no growth; so, they did not rush in en masse in the early 1980s.

It can’t be just a bet on the US economy. GDP growth was 5.9% a year from 1981 through 2007, and 9.1% from 1961 through 1981. It can’t be more rapid earnings growth alone — corporate profits grew an average of 7.04% a year from 1961 through 1981, and an average of 8.08% a year from 1981 through 2007.

For the markets to be higher, the businesses have to be more valuable. As interest rates fall, your discount rate drops, naturally increasing the value of the businesses. As interest rates rise, your discount rate must rise with it. When rates are 4% or 6%, you need not change your discount rate if you are using 9%, 10%, or more. If interest rates rise to 14% again, you wouldn’t want to discount at 9%. Using a higher rate drops the value of the business.

The markets will be higher if the businesses in the Dow and/or S&P 500 are more valuable…not just bigger. Play around with your discount rate to see how the value is affected.

Mind you: This is all a discussion on the markets in aggregate. As a few of you have said, it doesn’t matter for the business investor; but, it will matter for Americans in general.

What does this have to do with the Dow? The Dow represents a slice of the American Economy thus a slice of America. If you believe the overall picture of America’s future is strong and will increase over time then you have to believe the Dow will too. Why? Because the stock market in the short term is a voting machine and in the long term a weighing machine, the Dow will have to follow the fundamentals of the American Economy. Which to me, I believe will be better in 10 years than today.

When people ask me why invest in a S&P 500 index fund? I answer, the index represents America’s future and if you’re long the S&P 500, you are long America.

I don’t think about that question. I just focus on whether the businesses I am buying will likely be creating more cash from a more secure competitive position ten years from now than past/present and that the price is sensible. Luckily for me being a prudent business buying doesn’t require a confident answer to macro questions.

My two cents, keep the change.

So yes the odds overwhelmingly suggest a higher stock market in ten years.