It's possible that stocks will not be worth their trouble for another many years. We could already be in a range that holds for so long that people simply move beyond stocks as a place they consider storing their money. The stock market could become a distant report for specialists only, much the way most people view esoteric investments like cattle futures. How much does the cattle report factor into the lives of most people you know?
It's already like that here in Japan. For the first five years of the lost decade of the 1990s, individual Japanese investors tried scooping up bargains on every minor bottom. The more nimble among them probably made a few yen in the bounces of 15% in autumn 1990, 40% from summer 1992 to summer 1993, 48% from summer 1995 to summer 1996, and so on. Each was heralded as the start of a new bull market, all proved false. The three bounces just mentioned were followed by respective drops of 45%, 21% then a spike followed by another 32%, and 43%. After eight years of fighting it out in the trenches, most stock investors saw their accounts worth less than half what they had been at the end of the initial drop.
Small wonder, then, that people gradually packed up and left. That was 11 years ago, and the Japanese stock market trades today at a level 20% lower than it did at the end of that example. When the news of plunging markets covered papers, magazines, and websites last year, few in Japan cared. Why would they? They hadn't had money in stocks for more than a decade and don't plan to ever put any in again. If anything, last year's headlines just confirmed that they'd made the right decision. "Gambling is fun," one engineer told me, "but it's not the right way to plan for the future."
Such a sentiment could take hold in America, too. The same factors that killed Japan's equity market are present. Banks blew up, government screwed citizens to bail out banks but didn't bail them out enough to actually get things moving again, the unresolved bank debt was moved from banks to the country's balance sheet and an increasing portion of tax revenue was siphoned off to service that debt, so a new normal took hold with a lower rate of growth and a much less enthusiastic population, most of whom never really understood what the hell happened. How did life go from golden bathtubs to goldfish for dinner because of some banker's mistake? It did, though, and it's happening in America, too.
During the savings and loan scandal of the late 1980s, a regulator named William K. Black exposed government connections to bank fraud when he accused then-house speaker Jim Wright and five US senators, including John Glenn and John McCain, of doing favors for the S&Ls in exchange for political contributions. Black wrote a book about the experience, aptly titled "The Best Way to Rob a Bank Is to Own One." Last April, he appeared on Bill Moyers Journal to discuss the subprime mortgage crisis. Among his many excellent observations, the following comment caught my attention:
In the savings and loan debacle, we developed excellent ways for dealing with the frauds, and for dealing with the failed institutions. And for 15 years after the savings and loan crisis -- didn't matter which party was in power -- the US Treasury Secretary would fly over to Tokyo and tell the Japanese, "You ought to do things the way we did in the savings and loan crisis, because it worked really well. Instead you're covering up the bank losses because, you know, you say you need confidence. And so, we have to lie to the people to create confidence. And it doesn't work. You will cause your recession to continue and continue." The Japanese call it the lost decade. That was the result.
