I know I’ve said this before, but I’ll repeat again what Carly Simon sang in her 1971 hit Anticipation: “These are the good old days.”

WE now have 96-years of high-quality market data, and a quick look at the numbers showed a few interesting things:

1. The nominal change in the S&P 500 was in the 92nd percentile of all rolling three-year returns.
2. Inflation annualized at 3.6 percent during that time, which put the ‘real’ rate of return for the S&P 500 in the 90th percentile of all rolling three-year returns.
3. The annualized volatility of the market was in the 70th percentile of all rolling three-year periods, which means that the Sharpe ratio, a measure of risk-adjusted returns was in the 86th percentile.

If you had asked me three years ago whether I thought the S&P 500 might double in three years, with relatively benign inflation and low volatility, I would surely have put up an argument. Yes, anything is possible, but I wouldn’t have thought it likely. I would have said five percent per year, net of inflation.

And, that was more than a year ahead of the pandemic.

If you would have told me that there would be a global pandemic almost halfway through the next three years and markets would double, I would have been polite, but also said, ‘no chance.’

That alone is a good reminder that markets are unpredictable, but there are a few more things we can say too.

First, American businesses and consumers are awesome. During the 2008 global financial crisis, a friend cheered me up by saying that you can always count on Americans to spend money. Sure enough, they did and American business capitalized on it.

Second, love or hate the government, you can’t deny the impact of the government.

From the fiscal side, the debt-to-GDP for the 20 or so years before the 2008 financial crisis was around 60 percent. Thanks to that crisis, it jumped to around 100 percent, where it stood until the pandemic. Now it looks like 120 percent is the new number, if not higher.

On the monetary side, they lowered interest rates to zero in the 2008 financial crisis and then started buying bonds in the open market to drive and keep interest rates lower. They had about a trillion dollars going into that crisis and grew that to about $4 trillion.

They were struggling to shrink that number when the pandemic hit and went in whole hog: The Fed now has about $9 trillion in assets.

I’m not saying the government did everything – go back to my first point that American businesses are awesome.

Just before the 2008 financial crisis, a certain fruit-named company launched an expensive cell phone that allowed them to turn into a $3 trillion company (one company, worth about a third of all of the bonds owned by the Federal Reserve).

There are a lot more awesome stories like that – the pace of innovation today is breathtaking.

I am not a doom-and-gloomer at all, but I do wonder how we’ll cope with all of the debt that we have accumulated and how the Fed will unwind its balance sheet.

And in the shorter run, I’m a little bothered by the high stock market valuations. I thought stocks were overvalued a few years before the pandemic, and while earnings have exploded, prices have exploded more.

I’m not so foolish as to predict a crash; in fact, I’m not going to predict anything. I do think, though, it’s wise to be cautious. Don’t take the last three years and extrapolate them in your head with the hope (or worse, expectation) that the market will do the same thing.

I don’t try to hide that my goal with these Insights and our quarterly letter is to educate, inform, and more importantly perhaps: tell people not to get too depressed during the bad times OR too excited during the good times: we’ve planned for both.

For now, I’m happy to report on the good times. Enjoy!