12/8/19

Donnie Brasco Investment Returns

Are you unhappy with your investment returns? 

The Dow sits at over 28,000, gold is up 20% this year, 30-year Treasury bonds have earned 15%, and bitcoin has doubled.  Are you getting your piece of easy money pie? If not, it is the fault of the Donnie Brasco investment world. 

It is a Donnie Brasco Investment World


In Donnie Brasco, the mobsters come under financial pressure. Facing tough times, they are forced to put the squeeze on all sources of cash. In one scene, Al Pacino's character is reduced to stealing coins from parking meters (click for scene). 


Times are tough when a made man clips meters

What do tough times have to do with today's financial markets? Burton Malkiel's drunk monkey would be rich in 2019 as all risky assets have soared in price. 


AssetSymbol2019 YTD returns
Dow Jones IndustrialsDIA22.67%
Non-US StocksEFA18.33%
Emerging Market StocksEEM9.71%
US Long-Term BondsTLT17.52%
GoldGLD13.70%
BitcoinBTC92.41%

The Dow Jones Industrial Average was at 6,470 in 2009. Today it sits at over 28,000, having hit more than 100 new, history of the world, all-time record highs just since 2017. US Stocks have been on fire, and it has been hard to find a losing investment this year. 

Bitcoin has almost doubled this year, foreign stocks are up huge amounts and even, boring, watch the paint dry, 30-year US Treasury bonds have returned almost 20% so far this year. 

All of this is true, and it makes many people feel bad for not being richer. Nothing is worse than feeling money stress when everyone else is enjoying the financial party. 


Seems like everyone else is making tons of money

The headlines are true, 2019 has been a great year for making money. The longer-term, more accurate picture, however, is a slow financial squeeze. It is becoming harder and harder to make a buck. There is a horrible, slow stabbing scene in Saving Private Ryan. 



The current financial situation is more similar to slow death in Saving Private Ryan, and the financial squeeze in Donnie Brasco, than it is to the free money image portrayed by reading headlines about the Dow Jones Industrial Average making new highs. 

Consider gold as one example of the challenges of making a buck. Gold currently sells for $1,460 dollars an ounce up 13.7% since Dec 31, 2018. Has gold been a route to riches? 

No. Why not? 

Gold's price was $1,917 in 2011. Gold has been a losing investment for almost a decade. Parking meter robbery has been a better route to wealth than buying gold for a long time. 


Most Investments are in a long-term drought

There is a similar pattern in almost all markets. Recent returns have been good, but longer-term returns have been low or negative. Stocks outside the United States, both the developed economies and emerging markets, peaked in 2007. 12 years have passed without the ability to make money by sitting in stock markets outside the US.

Two significant investment markets are at all-time highs. However, even in those markets, the returns have dropped recently. Let us start with the Dow Jones Industrial Average ripping to new highs almost every day. The Dow sits at 28,015 as I write this -- what is not to love? 

In January 2018, the Dow hit 26,616. So the annual rise in the Dow over the last two years is a little over 2%. Similarly for US housing prices. The US government publishes average house prices and they are at record highs (click for data). Over the last year, however, the average US house price rise has been 3.5%. 


Even the best investments have plateaued 

So the source of your investment stress is not your decisions, it is the arid investment climate. See the table below for a more comprehensive summary of sparse returns that have been available. 


The financial future looks bad to Chicken Little

Finally, I continue to expect that the last two positive markets, US Stocks and real estate, will decline soon. It's a challenging investment world. 


current price or levelprevious peak or edge of plateaudate of previous peakduration low/negative returnsreturn since plateau/peak
Stocks
Dow Jones Industrials28,01526,616Jan 20182 years5.26%
EFA$68.69$86.60Oct 200712 yearsnegative
EEM$43.12$55.83Oct 200712 yearsnegative
Bonds
10-year US treasury yield1.84%1.36%July 20163 years0%
Real-Estate
US residential index279.22269.76Dec 20181 year3.51%
Commodities
Gold$1,460$1,900sept 20118 yearsnegative
Oil$59$150June 200811 yearsnegative
copper$2.70$4.54Jan 20118 yearsnegative
Crypto
Bitcoin$7,500$20,000Jan 20182 yearsnegative






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