Markets will continue growing but at a slower pace

Markets historically have always grown when viewed from the long term perspective.   Market growth is a representation of increases in the wealth of our society and the many business that it comprises of.  The three main drivers of this growth are technology, increase in money supply and population growth the years.    I think we can be confident of the first two factors to continue.  It can be argued of whether technology growth accelerates or decelerates, however continuous improvement, human ingenuity and drive towards progress seem to be at the heart or a brain of our species existence. 

Money supply growth also seems to be the key component of our economic structure.  This is seen in central banks’ long term tendency to decrease rates to keep credit flowing, and more recent economic stimuli by governments via cash payments directly to citizens and ever-growing budget deficits.  There could be temporary changes in this trend, such as credit tightening, balancing of the books but it seems overspending and credit growth have been now engrained in our economic institutions policies and actions, and this trend is unlikely to reverse. 

Long term population growth is under question as most developed and emerging markets have sub-replacement fertility rate (i.e. lower than 2.1 children per woman).  This trend has been visible for over a decade now but is only now becoming more visible and talked about.   Of course, many developed nations substitute their natural population declines and stagnation through immigration, however the downward sloping trend is present even in countries with still high fertility rates.  So, it seems it is a big yellow flag in the long rim, however will not be felt in the short-medium term in United States and Western Europe.  Japan, South Korea, Eastern Europe and China are already suffering from this trend.

In addition to the market drivers, there are many prerequisite to this growth such as presence of free markets, sound legal and banking systems, level of trust between market participants, sophisticated logistical chains and availability of resources.  I am not over optimistic that we’ll make any great gains in the above parameters; quite contrary it seems there is slow erosion, at least in the developed markets.   Even more pessimistic is future availability of natural resources given our tendencies to over-consume with things generally becoming more scarce with time.  This is offset by technological developments, especially in energy and use of new materials that make us more efficient.

So, my conclusion is that markets will continue to grow long term, however at a slower pace.