We’re bored, but we're still bears

If you bought US shares at the peak of the market in 2007 and have reinvested all your dividends ever since, you are now pretty much evens. You might not think that zero (or -15% or so in inflation-adjusted terms) is much of a return over nearly five years. But given the extent of the global financial crisis it has coincided with, you should probably be grateful for it.

The question is: how long will it take for you to be more than evens? If you listen to Goldman Sachs, the answer is "not long at all". They think that after the disasters of the banking crisis, we are now at the beginning of a splendid bull market.

We sum upthe argument here: The return of the bull. It boils down, first, to the fact that US equities yield significantly more than bonds, which hasn't been the case since the 1950s, and, second, to the idea that the next decade will see extraordinary global growth.

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Do we agree? We'd like to: we are bored bears here. But we aren't yet convinced. The yield argument is tricky given sovereign yields are artificially low. If they weren't, would the argument stack up? We also find it tricky to buy into the idea that the next few years will be big for economic growth, given we remain bearish on China. Instead our eyes are drawn to the fact that markets regularly go through multi-decade periods in which they go nowhere with exceptional volatility.

Look back to 1966-1981. The FTSE wasn't much higher at the end of that period than at the begining, but it had soared and tanked several times along the way.

Much the same is true of the last decade or so. Between December 1999 and March 2003 the FTSE 100 fell 52%. From March 2003 to June 2007, it rose 106%. From July 2007 to March 2009, it fell 48%. Then from March 2009 to February this year, it rose 76%. Now it's not far off where it began. Up and down the market goes.

But it tends to end up pretty much where it began. It seems to me this trend is likely to stay with us. There will be periods when it looks as if prosperity is returning or when central banks are chucking money around with extraordinary abandon. And there will be periods when everything looks pretty dire. Making money will simply be about shifting around between the phases.

So is this particular mini-bull bit over yet? It might not be. That's partly because the global economic news remains relatively benign (no shocks yet this year), but more because those buying into it haven't yet done so wholeheartedly.

James Mackintosh, writing in the FT, points to some unusually scaredy-cat behaviour from today's buyers. Generally the more a market rallies, the happier investors are to be in it.

But this time around they are hedging themselves against their holdings falling at record rates (by buying into exchange-traded funds(ETFs) that buy futures in the Vix - Wall Street's 'fear index'). That suggests there is a little more money to be pulled in to push prices up before it all goes wrong again.