[gumby]

Who cares about returns over the next 150 years? Even half that is excessive. Someone investing at age 18 might care about the subsequent 50 years.

It's going to be a long time before some other country takes over the "reserve currency/investment market of last resort" position the US currently has. No other market is even close to providing the deep liquidity and rule of law the US market has over a wide variety of instruments.

Sure, someone will eventually take over that role, but there are no candidates today. And, to your point: it was clear by the late 19th century that the US dollar would displace Sterling, but it took another half a century for that to happen. On the scale of current human lifespan, you can assume it won't happen at all.

[ganonm]

Keep in mind that the present value depends somewhat on the discounted future earnings, which by definition extends to the end of time. That being said, the associated time discounting heavily reduces the impact of earnings envisaged say 100 years from now (a 5% discount rate would mean ~13k USD in 100 years is worth about 100 USD now, and that's probably generous given historic market returns).

So, the US doing extremely well 100 years from now vs. the US doing very badly 100 years from now could have a non-trivial impact on the perceived value of US assets. I suspect that the large uncertainty about what the world will look like in 100 years means there is just some sort of seldom changing value baked into assets to account for this, but it nonetheless exists, and could change if there was some huge geopolitical shift.

And before you mention anyone on earth would be dead in 150 years, yes that's true, however you can always sell it to someone later on who will be alive in 150 years (or sell it to someone who can later sell it to someone etc. etc.).

[mint2]

Is that actually how it works? Money has to go somewhere regardless of future. Whatever looks the least bad at present is in demand, regardless of what the returns are. Inflation was above tbill rates yet people bought because they don’t have better options.

It’s like food. Food in 100 years does not help the need for food now.

[kqr]

Food perishes faster han equity indices.

If there was a futures market in foodstuffs that basically keep forever and is cheap to store (honey?) you would see that the expected price of that food in 100 years would have some effect on the current price.

[nonethewiser]

In theory maybe, but I'm not sure this is right. The further out you go the more worthless expectations on returns become. Who actually has high confidence in a price model projecting 100 years out? What organization has the conviction to execute on this 100 year plan instead of signals with real correlation for returns over 1, 5, 10, 20 years?

[dalbasal]

Why is "reserve currency" the central issue?

Also, the US stock market, US Dollar and US economy/gdp aren't hard linked to one another these days. The companies listed can be selling to non US markets, employing internationally, founded internationally. They're just listing on the US stock market because well.. that's where the stock market is. The US could, in theory, become more or less popular a stock market regardless of its currency's popularity.

Meanwhile, both the Euro and RMB have similar size markets backing their currency. Neither one is currently trying to displace the USD. I think the importance of owning the international currency is somewhat speculative.

[PKop]

The reserve currency built atop the petrodollar system produces a cycle of the rest of world needing to acquire dollars to trade for commodities and most other commerce around the world. Because it gains this reserve status, it has stability and confidence, and thus since countries need it to buy input commodities and energy, they acquire foreign exchange surpluses by selling goods to the US and running trade surpluses. Since they have stockpiles of dollars, it is conducive that these dollars are also used for trade of other goods and also the creation of borrowing and lending demand in dollars outside of the US.

If countries then acquire dollar surpluses by running trade surpluses with the US, the US by contrast has a trade deficit. This is equivalent to having a capital surplus for the US. It means excess capital is funneled back into the US into the capital markets buying stocks and bonds.

This is maybe a chicken and egg phenomenon..is it the demand to invest in the US creating a capital surplus that creates the dynamic whereby the $ becomes reserve currency and the US runs increasingly large trade deficits? Is it the military/political power that creates all of the rest? Probably all of above. But in any case the reserve currency system has at its core the financial markets of the US that the rest of world invests their surplus into, incentivizing them to produce in excess and trade real goods and work with US in exchange for paper IOU's that they can invest into the US markets.

A big aspect of this $ financial/trade system isn't just the $ as currency itself but the unique and important position of US treasury debt as the premier reserve asset that countries store their surplus and forex reserve in, and which is the center piece of the eurodollar[0] lending markets.

[0] https://www.investopedia.com/terms/e/eurodollar.asp

[lottin]

Trade deficits and capital surpluses go hand in hand. This is easy to see. If the value of your imports exceeds the value of your exports (i.e. you have a trade deficit), the excess imports must be financed somehow—either borrowing money abroad or selling assets (such as equity) to the rest of the world. This results in a net flow of money into the country, i.e. a capital surplus.

[rjzzleep]

The only problem with that is that because of the sanctions the Euro demand has plummeted and all major economies outside the west are dumping their dollar reserves and are moving to non dollar settlements, Saudi Arabia and the GCC just signed a massive cooperation deal with China and some other places have pegged their currencies to the Ruble. Yes the dollar is strong and will stay for a while, but to believe that nothing has changed in the recent past is to be wilfully oblivious of all the idiotic policies that have weakened the Euro and the Dollars position in the world.

[gumby]

There are waves of that effort periodically (use a different reserve currency) but they always peter out. It's simply too hard for reasons in my original comment. Eventually, yes, but unlikely in the lifetime of anyone alive today.

The policies you describe as "idiotic" are rationally imposed. The assumption is that they will weaken Russia's war effort, and that the cost, while high, is much lower than fighting a hot war down the road if Russia is allowed to continue to invade its neighbours.

You can argue that the policies aren't working, but while looks like that in the headlines, if you look at what's going on inside Russia all the lines are pointing down, even if the government's own figures claim otherwise. You could argue that a slightly different class of restrictions could be more effective.

But the only basis for "idiotic" is if you think it's none of the EU's business if Russia chooses to invade and try to conquer one of their neighbors.

[mejutoco]

Could you elaborate on why sanctions are "idiotic" in your opinion?

[gumby]

> This is maybe a chicken and egg phenomenon

Unlike the chicken/egg situation we know precisely when this system was born: the Bretton Woods Conference, 1944.

To some degree of course it recognized what was happening anyway (uh oh, chicken/egg is back) but rather than letting things evolve it built upon emerging practice to build the modern global financial system (basically still in place despite further evolution, like floating currencies).

[bobthepanda]

Yeah, China has already indicated that it would prefer the ability to implement sudden, nearly total capital controls rather than be annoyed with the day-to-day of a reserve currency.

[malandrew]

Stock markets are natural monopolies. Liquidity begets liquidity. What would cause companies to choose other exchanges and what stops the dominant exchanges from adapting to changes that threaten its liquidity advantage.

Is there anything stopping the NYSE, Nasdaq or CME/CBOT from handling trades in another currency?

[gumby]

> Is there anything stopping the NYSE, Nasdaq or CME/CBOT from handling trades in another currency?

It would reduce liquidity. Equity prices would fluctuate not only on buy/sell basis but exchange rates. Sure, computers could figure all that out these days but what's the advantage? Overwhelmingly, equity buyers and sellers (not "traders") buy in their local currency because they use the money to live in a local economy.

Companies list in other countries for access to those countries' buyers. What would be the point of Shell listing in Euro on the NYSE? They want to list in dollars. Nobody outside Nigeria lists on its exchange but local companies do because local people understand the companies and everything (both their operations and their stock) is in naira.

So if you want to be an exchange in a different currency, just buy a local exchange. NASDAQ did try to buy the London Stock Exchange, though I think it fell through.

[time_to_smile]

Or we see a contraction in globalization in general in which all economies shrink.

It's entirely reasonable that we could enter a period of long, slow decline across the board. Especially as we continue to push the limits of natural resources and global supply chains.

For example suppose the US continues to move its push to return chip manufacturing to the US. This might mean both that US chip manufactures have a more healthy future than other more fragile tech companies and that they shrink in size. We could see a return of manufacturing to the US which leads to continued employment in US labor for while also meaning that labor force gets paid much less.

We're already starting to see evidence of this happening.

The concerning thing is that I'm not at all sure that our incredibly debt dependent global economy, which assumes future growth, can really handle a gradual contraction to a more sustainable economic structure.

Either way, assuming up is the only way for the market to go is a very naive assumption, but one nobody is happy questioning.

[verdverm]

> a gradual contraction to a more sustainable economic structure

Why do you assume that it requires a contraction to reach a sustainable economic structure?

What prevents the economy from growing for the foreseeable future while also becoming more sustainable at the same time?

[time_to_smile]

Before answering your question, you need to first be clear what "sustainable" means. For me sustainable means that we can continue to life as we do indefinitely.

Our current economic structure, due to its reliance on credit, requires perpetual growth and development in order to pay off today's debts. Debt in all forms has been growing increasingly and rapidly in recent years.

Infinite growth is not possible on a finite planet.

In many areas we are already seeing the limits of growth, from strains on oil supplies to global population growth starting to slow down. This is already, today, putting a strain on our economic systems.

Since our current way of life can only be sustained by future growth, it is by definition not sustainable unless you sincerely believe growth to be without limit (this would require near term interplanetary travel and energy advances such as fusion). As mentioned, we are already seeing system strain suggesting we are hitting limits.

Contraction is the preferable path of the two realistic alternatives, the other is complete collapse.

How do you propose the economy growth for the foreseeable future and becoming more sustainable?

[verdverm]

By becoming more digital and services based. Most new added value is from non-physical activities, i.e. does not require significant raw material input. We'll also likely get better at recycling and using biology to create new sustainable sources for inputs, like hydrocarbons

[vl]

>We could see a return of manufacturing to the US which leads to continued employment in US labor for while also meaning that labor force gets paid much less.

Interesting! Why is it happening? Shouldn’t labor earn more in this scenario?

[bluGill]

Depends. Manufacturing in the US implies high automation. For those who maintain the machines there is a lot of money, but there are far less jobs and in turn far less in total in labor.

Though I suspect there is more need for such labor than people who can do the job. Hard to say, but there are a lot of things we haven't automated yet.

[MuffinFlavored]

> Someone investing at age 18 might care about the subsequent 50 years.

With a gradual decline in exposure to equities over time.

https://www.google.com/search?q=what+asset+allocation+should...

[ideamotor]

This is terrible advice. It’s more complicated than this and depends on your situation (age, social security, pensions, tax deferred account timing) but generally you want less stocks when you enter retirement but gradually going back up in retirement.

[MuffinFlavored]

> but gradually going back up in retirement.

Why would you want to be more exposed to riskier equities (a la they are down 20% in the past year) when you are 65 years old and have no income other than dividends/bond yields?

[triceratops]

First time I've heard this idea but it intuitively makes sense to me. You spend from your bond investments in the first part of your retirement, which is when you're most vulnerable to market declines. If you have a long retirement then you might still need the higher growth from equity holdings to fund the latter half of your retirement. So start putting spare cash back into equity for that.

[ambicapter]

Why going back up in retirement?

[ideamotor]

I'll respond in more detail later but here is a paper that examines it: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324930:

"Accordingly, as the results support, for those looking to maximize their level of sustainable retirement income, and/or to reduce the potential magnitude of any shortfalls in adverse scenarios, portfolios that start off in the vicinity of 20% to 40% in equities and rise to the level of 60% to 80% in equities generally perform better than static rebalanced portfolios or declining equity glidepaths. Though as the results also reveal, in particular scenarios where the equity risk premium is depressed, the optimal glidepath includes less equity, and in scenarios where the goal is to withdraw at a level that stresses the portfolio and its expected growth rate, higher overall levels of equity are necessary; with such high-risk goals, having a relatively high-risk portfolio, with the danger that entails, is still the optimal solution (and for clients who cannot tolerate that level of risk, the ideal solution is to choose not a less risky portfolio, but a less risky and aggressive goal). Nonetheless, for everyone else looking to maximize a sustainable income level, or determine the amount of assets to support a (reasonable) target income level, rising equity glidepaths appear to both maximize the likelihood of success and sustainable income and reduce the magnitude of shortfalls when they occur."

There is a a lot of discussion of this here: https://www.bogleheads.org/index.php. Also, this article: https://www.kitces.com/blog/should-equity-exposure-decrease-....

[zeckalpha]

You'll have cleared the riskiest window for sequence of return risk.

[roenxi]

1. After what happened to Russia every planner in China has "the US government seizes our assets" as a plausible in the next 50 years.

2. It is implausible that the US will ever pay back its foreign debts in real terms. Anyone who lends to them will end up with less stuff in total.

3. We live in an age of computers and pervasive digital communication; things can happen a lot more quickly these days than in the 50s.

4. There is a consistent trend of dropping energy security in Western countries.

This is no time to be forecasting assuming things will happen at a comfortable pace. People should have contingencies ready in case something unprecedented happens. It is tense out there.

[cwal37]

Actually, over nearly the past two decades, in the US, it has been the opposite of a “consistent trend of dropping energy security.” Considered like a trade balance, since 2019 the net energy balance in the US is positive.

[roenxi]

https://ourworldindata.org/energy -> Chart per capita primary energy use -> pick the US -> observe steadily dropping per capita energy use per person since 2000.

Down ~20% from peak. That is not a country drowning in cheap energy, that is a coming under a lot of pressure. Not a time to be going "eh, long term trends take a while to kick in". The long term trends have been around for a while, we're well in to the part where we start reaching tipping points and step changes.

What is going to happen? Who knows. But it could happen quite quickly.

[lolinder]

So your argument in support of the claim that the US isn't secure in its energy supplies is that we're using our energy more efficiently than we were before?

I can imagine how that could be a second order effect of energy insecurity, but there are other explanations that seem more likely, like:

* The move from incandescent to LED lighting

* Improved insulation and heating technology

* Energy efficient appliances

* Removal of inefficient vehicles in favor of more efficient vehicles

You're going to have to do better than "per capita energy use is dropping" to convince me there's a looming threat to US energy supplies.

[roenxi]

The US political situation isn't remotely consistent with it being a country that has just freed up 20% of its energy for alternative uses. It is acting like a country that is being squeezed and has an increasingly desperate underclass that has gotten quite disgruntled.

20% is like having no energy on half of Saturday and all of Sunday. The improvements you listed are not comparable.

[JumpCrisscross]

> is not a country drowning in cheap energy

On average, we have cheap power [1]. If you're power hungry, we have some of the cheapest power on the planet [2].

The fact that coal-burning China pays more for power [3] than American industry should drive home our massive geostrategic advantage.

[1] https://www.statista.com/statistics/263492/electricity-price...

[2] https://www.eia.gov/electricity/monthly/update/end-use.php

[3] https://www.globalpetrolprices.com/China/electricity_prices/

[roenxi]

You seem to be referencing electricity. That is missing the energy which comes from oil. The energy from oil is the important stuff here, because it is the one that links into the US dollar and its performance.

And the US having access cheap oil is a good argument for why there might be a sudden step change in their economy - there are a lot of people with a serious interest in breaking the US dollar oil trade. Now including Russia and possibly China if they can read the writing on the wall. The US can't fight them both at once so China is in a pretty good position to get away with stuff right now if their regime survives COVID.

[nonethewiser]

You dont think the largest oil producer in the world has cheap oil? Even compared to a country which is completely dependent on oil imports from the middle east and Russia?

[int_19h]

I would hope that our energy consumption per capita is lower than it was 20+ years ago, given how much of it is from burning fossil fuels that we've been struggling to reduce.

Energy security is not about how much energy we do spend, but rather about how much energy we could spend, if we wanted. On this count, OP is right and the situation is still better than it used to be.

[gumby]

The energy intensity of the USA (Kcal/$GDP) has been falling for decades. You don't understand the figure you are quoting.

[gumby]

Almost all wrong, except #1. #1 is a definite risk, and a more interesting one than just Russian and Chinese "planners." Otherwise your note is nonsense.

2. No sovereign government debt is paid down in real terms over the very long run (this doesn't have to be so, but the data). So why should a non-national buy it?

If you buy US debt you get an asset that is supremely liquid and extremely unlikely to default. Over shorter terms from right now it appears likely to outperform other sovereign assets.

In very short terms at various times you can make money trading marginal countries' debt (even Argentinian!). But you take on a big risk premium for that!

3. There is so much analysis of technological advances of the 20th century that I won't even bother to try an summarize. WWII began with horse drawn artillery and ended with jet aircraft and ICBMs. My own grandmother was alive from kitty hawk to moon landings and robots spread out through the solar system. Things move frustratingly (for me) slowly these days.

4. Arrant nonsense, with the trend pointing the other way.

[nonethewiser]

> After what happened to Russia every planner in China has "the US government seizes our assets" as a plausible in the next 50 years.

Only if they plan on doing something akin to starting a war against Ukraine.

[patrick451]

I'd rephrase this as only if they plan on doing something the Americans have done themselves many times in recent memory. Which makes predicting what will set off western ire difficult to predict.

[the_doctah]

What kind of contingencies? Money in mattress?

[roenxi]

I've got no particular clue. But if the plan is to assume things happen slowly over 50 years then that is a risky plan. If things play out like in the 1900s, we could see an entire world war play out over 5 years and that'd likely break the US dollar. Or some similar shock. We still don't really understand the impacts of the COVID pandemic and what that is doing in China.

> Money in mattress?

The response to every crisis the US has had for the last 3 decades is to print and borrow increasingly large amounts money. And they are probably the most responsible fiscal controller around at the moment.

If you see that changing for some reason then sure, maybe money under the mattress could help. I don't expect that strategy to change myself, and the last thing I'd want under my mattress is money.

[nonethewiser]

The problem is that you have to pick an alternative. The default is probably cash, because that's how you get paid. If you can't even make an argument for an alternative then I think the overwhelmingly historically best option is the obvious decision. Gold is something people often make an argument for in this case but it's historical returns are pretty bad.

[roenxi]

I can make an argument for anything being better than cash including a massive tinned baked bean stockpile. It is quite hard to do worse than cash.

> Gold is something people often make an argument for in this case but it's historical returns are pretty bad.

I don't follow, gold has been making pretty reasonable returns for about 20 years now and has been a far superior option to cash. What don't you like about it?

[bee_rider]

What does investing with possible WW3 taken into account look like? Heavy on canned food, bullets, and remote real estate I guess? Assuming nuclear weapons don’t just magically vanish.

[kudokatz]

> People should have contingencies ready in case something unprecedented happens.

> What kind of contingencies? Money in mattress?

The right to live in multiple countries on a permanent basis (foreign permanent residence and/or passports) and investments that automatically balance as world markets shift over time (e.g. the worldwide equivalent of VTI: VT)

[nonethewiser]

If a world war causes the US stock market to crash you can be damn sure that the rest of the world is going to have bad time starting from a worse place. Not only are other countries so connected to the US's global economy, but many literally cannot secure trade without US security and US lead organizations.

[ahyattdev]

Those lending to the US government are doing so by purchasing US Treasury bonds, which have due dates and earn interest.

Based on the credit rating of the US government, they will certainly not end up with less in nominal terms.

[hammock]

100-year bond spot rate: https://alfred.stlouisfed.org/series?seid=HQMCB100YR&utm_sou...

[itsoktocry]

>Someone investing at age 18 might care about the subsequent 50 years

Those 50 years are part of the next 150, and are no easier to forecast. Most market projections are for numbers ~7% annually, but periods worse than that would drastically alter investing plans, and hence social infrastructure planning.

[JustSomeNobody]

That is why https://www.firecalc.com/ exists. The idea is that you save enough that over all the possible starting years, you would end up with money instead of broke, for the length of time you think you'll be alive.

[kudokatz]

It's my understanding that firecalc uses only US data. Japan has "lost decades" of price-weighted, non-dividend returns that are flat since 1988 (Nikkei 225). Seems worth considering that some version of this has some future probability of happening in the US and hedging that.

Another similar and popular US-data-only tool that is fun to play with is cFIREsim: https://www.cfiresim.com/

(Edit: of course, US companies have non-US revenues - helps out a bit)

[JustSomeNobody]

Yes, that's a risk. If that happens, most of us simply won't ever retire. Yay capitalism?

[paganel]

> Most market projections are for numbers ~7% annually,

Too lazy to web search for an answer, but are those real returns? (i.e. inflation-adjusted).

[zie]

> Someone investing at age 18 might care about the subsequent 50 years.

I get what you are saying, but your math here is a bit off.

50+18 = 68.

People generally can live longer than 68 years old, If we go out on longevity and assume people can live to 100 or 120, then it's more like 100 years.

Your next thought is, but people will retire before/around 68, fair enough, but they stay invested generally the entire rest of their lives.

So if the US dominance ends in the next 100 years, then today's teenagers might need to care about it. People in their 30's or 40's probably don't though.

The next 150 years, you are right todays teenagers might not need to care, unless many/all of our aspirational longer living goals happen.

[purpleblue]

No, this is poor investment advice. The closer you get to retirement, the more your money should be in extremely short term, non-volatile investments like T-bills. You should not be invested in the stock market, because the risk is too high that you could lose a lot of your savings just before you really need it.

[sokoloff]

On the first day of a typical someone’s retirement, they should probably be 40-50% invested in equities. An often cited rule of thumb is for your equity exposure in percentage to be 100 minus your age in years; others suggest 110 minus your age.

[GCA10]

Directionally right. I saw older family members switch out of stocks at 65, only to discover that their ultra-safe fixed-income investments failed to keep pace with the next 25 years' relentless increases in medical and care expenses. Assuming that you're not facing an immediate health catastrophe, your time horizon at age 65 is still decades, not single-digit years.

[zie]

I never talked about asset allocation, you did, but going 100% equities to 0% equities is not reasonable either.

Yes you probably want some bonds, but you still need some equities.

The default answer is something around 20% to 60% equities in retirement.

[FooBarBizBazz]

Everybody says this, but stocks and bonds go up and down together now. I guess it's less an issue if you're holding bonds to maturity and laddering, but that might just be psychological, not sure.

[zie]

Not really, they are somewhat correlated, but they are not completely correlated. Duration has a lot to do with it as well. Look up Long Term Treasuries(TLT/EDV are funds that hold these) and compare that to US stocks like VTI.

Bonds are like buying future cash-flow, stocks are about future growth.

i.e. if you buy a bond that's paying you $25k/yr, then you will get that $25k/yr regardless of what happens to the NAV until maturity(and/or bankruptcy obviously).

[weatherlite]

As long as interest rates keep rising is it a mistake to buy something like TLT? I'm looking into these products and am a bit lost. I am thinking a managed bonds fund is better than an automatic ETF bonds fund in this time. A manager could wait for interest rates to peak, but the ETF just mindlessly keeps buying treasuries. Is that a fair assessment?

[hindsightbias]

A future US Govt default is not exactly an infinitesimal black swan event looking at Capitol Hill this week.

[brianwawok]

Not convinced bonds are useful. There are other things that get you away from 100% equity.

[zie]

Sure, there are different asset classes that might be OK, but if you look across the landscape, bonds are still quite nice to have.

Bonds are just converting today's money to future cashflow.

TIPS are inflation adjusted bonds, so you can get a real return > 0% with bonds, guaranteed by the US govt. For baseline retirement expenses, it's hard to beat. Right now they are up over 3%/yr real. You can't buy inflation adjusted annuities anymore, basically Social Security is it.

If one has 50X expenses invested, it doesn't really matter what they do, they would be hard pressed to screw it up so badly as to run out.

If one only has 20X yearly expenses invested, they need to be a lot more careful, as they might not make it, especially if they get a bad sequence of returns.

It all depends on your personal financial situation, it's hard to make general rules that can apply to everyone. It's called personal finance for a reason.

Bonds are just a great default tool, but like all tools, they are not perfect.

[bushbaba]

That would depend on the drawdown rate and total wealth.

[Spooky23]

It should give pause to people who think that the stock market is some sort of science. Macroeconomic conditions and policy influence this stuff.

[newyankee]

My understanding is that development in some modern areas is exponential. This is the reason why China grew so fast. So a case could be made for faster timelines. US may not slow considerably but it will stop leading and being the only one.

[kingkawn]

Your assumptions presume that the pace of historical developments is the same as it was in the late 19th century, which seems clearly untrue. The rate that these things transform today may be breathtaking.

[acchow]

How can anyone assume the next 30-50 years of the US economy will be anything like its rise to superpower over the last 150 years.

[refurb]

Sure, but how can anyone assume it won’t be?

If you’ve been alive long enough you’ve realize the “end of US dominance” has been in headlines since the 60’s.