Don’t fixate solely on U.S.-based markets as the next decade will likely look different than the one just ended, notes Landon Whaley.
As we close the books on the 2010s, it’s an excellent time for a history lesson. Don’t worry; this isn’t going to be like your college freshman History 101 class with Professor McStuffins; this is a history of the U.S. Fundamental Gravity.
The Breakdown
Since Q1 1990, the U.S. economy has had 120 quarters of economic activity. Over those nearly 30 years, the U.S. economy has spent 32 (27%) quarters in a Spring FG environment, 25 (21%) in Summer, 38 (31%) in Fall, and 25 quarters in Winter (21%).
So historically speaking, the U.S. economy has spent its time roughly evenly split between periods of growth accelerating and regimes of growth slowing.
But those are averages, and we know that gleaning insight from averages can be ineffective and downright misleading. So, let’s look at this Fundamental Gravity history on a decade-by-decade basis.
During the 40 quarters of the 1990s, the FG breakdown was: 22 (55%) quarters in Spring or Summer, 11 (28%) in Fall, and (7) 18% in a Winter environment. During this decade, accelerating growth was more prevalent, and the instances of Winter were well below the average number of occurrences we’ve seen over the full 30 years.
During the 40 quarters of the 2000s, the FG breakdown is as follows: 15 (38%) quarters in Spring or Summer, 13 (33%) in a Fall environment, and 12 (30%) in the Winter. During this decade, growth slowing regimes had the upper hand, and Winter environments occurred at a rate well above their long-run average. Given the Winter FG context, its crystal clear why the United States experienced two recessions just seven years apart.
This brings us to the current decade of the 2010s. Over the 40 quarters, the FG breakdown is as follows: 20 (51%) quarters in Spring and Summer, 13 (31%) in Fall, and 7 (18%) in a Winter environment. Is it me, or are the FG stats for the 2010s eerily similar to the 90s?
If you believe as I do in markets and economies cycles, then its highly likely that coming off a decade tilted in favor of growth accelerating, the 2020s will mirror the growth slowing dominance of the 2000s. What’s more, given that the 2010s were the first decade in U.S. history without a recession, the odds get skewed even more in favor of a “double recession” decade as we experienced in the 2000s.
The Risk Consciousness
Not one U.S.-centric investor, professional or individual who began trading in the last decade, has experienced a stock market dip that wasn’t immediately bought, much less a year of bad performance or, God forbid, an outright bear market. These folks and their processes for managing markets have only experienced one of the most favorable economic and financial market environments in the history of Earth.
The Gravitational investing framework we use today got its origin during the 2000 equity market meltdown and the ensuing 2001 recession. The framework was further developed and successfully stress-tested during the crux of the Financial Crisis and the subsequent rebound in 2009. More importantly, because of our global macro focus, that framework has been further refined over the last 10 years as we traded all four major asset classes amid all four Fundamental Gravity environments on five continents.
The Bottom Line
I have no idea where the opportunities will come from geographically over the next 10 years or which asset class(es) will deliver the best returns. However, given the likelihood that asset returns in the United States will look very different over the next 10 years than the previous 10, fixating solely on U.S.-based markets is not the approach you want to take if your goal is to be a consistently successful investor who earns superior risk-adjusted returns. You must embrace a global macro style of investing, looking for opportunities, long and short, in all four major asset classes and across all investable economies worldwide.
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