John Templeton, the great value investor, famously said that the four most expensive words in the English language are, This time, it's different.
But what if, this time, he's wrong?
Maybe the economy isn't going back to its old ways any time soon. Maybe markets aren't going to revert to historical patterns in short order.
If so, it's possible that we're in a new investing era, one in which frothy stocks will go on being frothy for years to come.
That, to be sure, is far from a sure thing, but it would be in keeping with the views expressed by a couple of respected thinkers who have recently spoken about the state of the U.S. economy. The points they make seem relevant to Canada, too, because many fundamental forces – in particular, low interest rates – are similar in both countries.
Jeremy Grantham, co-founder of money manager GMO, and Lisa Emsbo-Mattingly, director of research, global asset allocation, at Fidelity Investments, didn't mention each other in their presentations but their perspectives are strikingly alike in some ways.
Both cite a disturbing lack of economic vibrancy. The fading vigour is apparent on many levels. Gross domestic product is expanding at a rate that would have been considered sickly a generation ago. New firms are being born at a much, much slower pace than in past decades. Old firms are sticking around longer than they used to.
The net result of this dwindling turnover is a geriatric private sector. We all know populations are aging at an unprecedented clip, but most of us don't realize corporations are greying, too.
In a presentation to a National Bureau of Economic Research conference last month, Ms. Emsbo-Mattingly compared the current economy to a forest that has been clear cut and restocked with only one type of seedling. Instead of the diversified ecology that used to exist, where fledgling firms of all types were constantly popping up, "the big trees" now dominate.
The shift is striking. In the early 1990s, those big trees – firms more than 16 years old – made up less than a quarter of all U.S. businesses. Today, they account for more than a third of the total and there's no end in sight to the aging trend, because new firms are becoming rarer. Despite all the hype that surrounds Silicon Valley and disruptive technology, the pace of business launches across the economy has actually been on a downward slide for years.
All of this sounds quite worrisome. But here's the odd thing: Times are actually good. While fewer people are starting new ventures, the incentives to do so have rarely been bigger. Corporate profits are unusually large as a slice of the overall economy and existing firms are doing just fine.
The intriguing question is why, despite this seemingly wonderful climate, fewer and fewer upstarts appear interested in challenging the big trees of the current business environment. "This doesn't seem to make a ton of sense," Ms. Emsbo-Mattingly says.
She points to several possible reasons, most notably the increasingly powerful role of central banks and their low-rate policies. Companies have several ways to enhance their bottom lines, but instead of investing in new production or launching innovative products, they now seem focused on using today's remarkably low rates as their chief profit-boosting tool.
For many of today's managers, the winning formula is simple: Borrow money, leverage up the balance sheet, watch the bottom line grow. It's a plan that makes perfect sense given the puny cost of servicing the soaring amount of corporate debt. But it's not a strategy that leads to strong economic growth or a fertile climate for new business launches.
Many of those same themes are echoed by Mr. Grantham, the famous skeptic who warned of both the dot-com bubble and the U.S. housing bubble long before either crashed.
In his quarterly letter to investors, he notes that he and other v