You can’t have a financial market lookback without talking about central bankers, writes Landon Whaley.
We’re closing the books on another great year and also putting a wrap on another decade, so let’s play a little game of “Did You Know?” 2010s edition.
You can’t have a financial market lookback without talking about central bankers! There has been a gazillion (give or take) central bank policy decisions over the last 10 years, but no one has been more active than the folks at the Central Bank of Brazil. The Brazilian Central Bank has cut rates 25 times and raised them 24, that’s an average of five policy decisions every year! On the other side of the spectrum is the Bank of Japan, which has been the least active central bank delivering just a single cut and zero rate hikes. Japan went to zero or lower in the lost decade and stayed there!
Turning our attention to asset class performance, the best performing government bond over the last 10 years was the long-dated U.S. Treasury, which gained a healthy cumulative return of +108%. The worst performing sovereign debt during the 2010s resided in Turkey. Turkish government bonds traded like a unicorn tech IPO, losing 39% over the last 10 years.
Speaking of bonds, how ‘bout those negative yields! In 2010, there wasn’t a single penny of negative-yielding debt in the world. At the peak earlier this year, there was approximately $17 trillion in negative yield fixed income. What could possibly go wrong?
Commodity performance over the last 10 years has fulfilled both the gold bugs and the peak oil believers. The best performing commodity during the 2010s was gold (though I consider it to be more of a currency), which rallied an underwhelming 34%, cumulatively speaking. While that return doesn’t sound too great, it's far better than the -26% hole that crude oil dug for itself over that same period.
From an asset class perspective, Bitcoin brought home the first place trophy. A $1 investment in the cryptocurrency in 2010 would be worth over $90,000 today! On the other side of the trade is the Myanmar kyat, which has fallen from $1 to just $0.004 today. If I was George Wells, I’d go back to 2010, put on the long Bitcoin/short kyat trade, go on a decade long sabbatical, and collect 2 and 20 the whole way.
It won’t come as a surprise that the best-performing equity market in the world over the last 10 years, is everyone’s favorite benchmark, the S&P 500. A $1 investment in U.S. equities on Jan. 1, 2010, is now worth $3.46. On the bear side of stocks, the worst performer was Greek equities, which lost 93% of their value, in cumulative terms. While not quite as good as our long Bitcoin/short Myanmar kyat trade, being long the S&P 500 and short the FTSE Athex 20 Index (Greek stocks) would have generated some serious alpha.
Specific to the United States, the 2010 decade was unique for two reasons: It’s the only decade in history the U.S. economy did not experience a recession, and it was the best decade for U.S. stocks since the 1950s. In short, this decade has been one for the bullish ages, from a financial market perspective. But keep this mind, everything in life experiences a cycle, and there is no question that the decade we are about to step into will look a whole lot different than the one we are leaving.
In Monday’s Gravitational Edge Playbook, I put on my elbow-patched corduroy blazer, grab some chalk, and walk you through a U.S. Fundamental Gravity history lesson. That lesson will provide great insight into what the decade-by-decade trend of Fundamental Gravity environments portends for the United States during the 2020s. As you’ll see, 30 years of data don’t lie.
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