Unfortunately, the long term overall stock market outlook for developed nations is not very rosy. And the reason for this bleak outlook is simply that the unthinking culture of consumerism and entitlement responsible for the decline of Western civilization has left most developed nations with debt that they will never be able to pay back and entitlement promises that are simply impossible to fulfill.
Developed world politicians are still diligently promising the impossible; that we will “grow ourselves out of the economic crisis”, but it is clear as day that real growth has stopped years ago and all developed world “growth” since about the turn of the century has simply been debt and money printing (that is why we are where we are today). The harsh reality is that real economic growth in developed nations is now simply impossible due to energy and environmental limitations, the law of diminishing returns and the fact that massively inflated Western wages and welfare benefits make many developed nations woefully uncompetitive in the globalized world we live in today.
When we accept that the prospect of growth is completely off the table, the only other option for keeping debt under control is austerity. And yes, austerity is bad news for the stock market. In general, businesses grow as a result of one thing: increased sales. Austerity measures cause people to buy less, thereby cutting off this fundamental growth mechanism and making widespread stock market gains all but impossible. It really is as simple as that.
Unless we discover some truly sci-fi technologies very soon, the developed world will be forced to swallow more and more austerity over the coming years. It is an undisputable fact that developed world citizens have been living beyond their means for decades now and the obvious aftermath of all of this thoughtless binging is that we now have to start paying our dues by living well within our means. The truth is therefore that austerity is nothing more than a much belated return to reality after a long stay in economic la-la land.
The only developed nations which still have good long-term stock market outlooks are those with low levels of debt and those with high and rising levels of competitiveness. Low debt implies that strong austerity and painful deleveraging is not necessary and high competitiveness simply means that this country will continue to attract further business. This classification essentially leaves only the Scandinavian nations, the Asian Tigers, two or three Northern European countries and Australia. The big four – the USA, most of the EU, Japan and the UK – unfortunately do not make the cut, mostly due to massive debt burdens and over-leveraged banks.
In general, the role of developed nations in our modern world is innovation. And as discussed in the previous post, the most essential form of innovation has to come within the green economy. Green investments in highly competitive and relatively debt-free developed countries therefore look like a very wise and ethically sound long-term play.