Those far from super statements. Headlines like this one from today’s Australian are the kind that should have the Labor Government worried.

Those updates from super funds to contributors telling people their nest egg has just got smaller are exactly the kind of thing to turn voters against a government. And they certainly blunt any benefit Labor thought it might get from making increased contributions to superannuation part of its plans to spend the proceeds from its carbon tax.

Perhaps the years of compulsory contributions for retirement being favourably looked at by most people are now passed and perhaps this graph of the history of the S&P index explains why.

Doug Short, the US financial adviser who produced this inflation adjusted chart, says an obvious feature of it is the pattern of long-term alternations between up-and down-trends.

Market historians call these “secular” bull and bear markets from the Latin word saeculum”long period of time” (in contrast to aeternus “eternal” — the type of bull market we fantasize about). …

The annualized rate of growth from 1871 through the end of August is 1.93%. If that seems incredibly low, remember that the chart shows “real” price growth, excluding inflation and dividends. If we factor in the dividend yield, we get an annualized return of 6.58%. Yes, dividends make a difference. Unfortunately that has been less true during the past three decades than in earlier times. When we let Excel draw a regression through the data, the slope is an even lower annualized rate of 1.71%. …

If we added in the value lost from inflation, the “nominal” annualized return comes to 8.80% — the number commonly reported in the popular press. But for an accurate view of the purchasing power of the dollar, we’ll stick to “real” numbers.

Since that first trough in 1877 to the March 2009 low:

  • Secular bull gains totaled 2075% for an average of 415%.
  • Secular bear losses totaled -329% for an average of -65%.
  • Secular bull years total 80 versus 52 for the bears, a 60:40 ratio.

This last bullet probably comes as a surprise to many people. The finance industry and media have conditioned us to view every dip as a buying opportunity. If we realize that bear markets have accounted for about 40% of the past 122 years, we can better understand the two massive selloffs of the past decade.

Based on the real S&P Composite monthly averages of daily closes, the S&P is 65% above the 2009 low, which is still 32% below the 2000 high. …

[Adding a regression trend line] essentially divides the monthly values so that the total distance of the data points above the line equals the total distance below. Remember that 2.00% annualized rate of growth since 1871? The slope of this line, an annualized rate of 1.71%, approximates that number. The difference is current above-trend market value.

The introduction of compulsory superannuation in Australia in the early 1990s just happened to coincide with that “current above-trend market value” of world stock prices. It made it look like accumulating wealth for retirement was some easy thing to do and people felt happy at being notified that the nest egg was keeping on getting bigger.

But in recent years, perhaps, there has been a regression towards the trend with nest eggs getting smaller and that is not a pretty sight.

Shooting the messenger. Tanya Plibersek is another of those Labor ministers who prefer to think that those who criticise this government must have some ulterior motive. In the gun on Q&A last night was Graham Richardson, described as being being paid to criticise the party he joined as a teenager.

Richo’s sin was not only to assert that the Malaysian boat people solution was a joke that former Labor prime ministers Gough Whitlam and Bob Hawke would never have pursued but that the party was letting focus groups run its agenda andthe Gillard government lacked a narrative.

“In 2007, Labor governed everywhere. By 2012, we’ll govern nowhere.

“Part of the problem is I just don’t think Labor anymore knows what it stands – it’s got to work out who it represents and what its core values are.”

Nothing remarkable about those sentiments I would have thought. Ms Plibersek and her ilk would do better to listen to the advice and take it rather than disparaging the messenger.

Peter Fray

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