Saturday, July 27, 2013

Real GDP per Capita Growth

The following chart shows annual GDP per Capita growth adjusted for inflation.

Click to enlarge.

What's the worst that could happen?

I'd be tempted to answer that we could stay in the long-term trend channel. I mean, that's really bad long-term, right?

I'd be wrong to answer with such optimism though. There's clearly something even worse. We could move to the middle of the trend channel again. That would be really bad. Note that the middle of the trend channel shows roughly -2.5% annual real GDP growth per capita. Ouch.

That's still not the worst that could happen though. In theory, we could actually move from the top of the channel all the way back down to the bottom again.

I'm not suggesting that the trend channel can accurately predict the future. I'm also not suggesting that we will move to the bottom of the channel even if it is valid going forward. I'm simply saying that the trend channel could be valid and that we could move to the bottom of it. Since 2004, I am a permabear. These are the things that would keep me up at night if I was a stock market investor.

In any event, I think it helps explain why I prefer long-term TIPS and I-Bonds. I'm just not much of a risk taker these days. I value my sleep.

This is not investment advice.

Source Data:
St. Louis Fed: Real GDP per Capita Growth

No comments: