What Are “Animal Spirits” and Could They Drive a 25-Year Bull Market?
Hello everyone, John here! The other day, while sipping my morning coffee, I was listening to a fantastic financial podcast and a really intriguing idea came up: Could we be at the beginning of a massive, 25-year-long period of growth in the stock market? It sounds a bit wild, I know! But the hosts were discussing some powerful forces at play, including something they called “animal spirits.”
Now, I know what you might be thinking. Let’s dive into what this all means, piece by piece, in a way that makes sense for all of us.
Lila: Hold on, John. “Animal spirits”? That sounds more like a topic for a nature documentary than a finance blog! What on earth does that mean?
John: (Laughs) That’s a great question, Lila! It’s one of those quirky terms that economists love to use. “Animal spirits” isn’t about actual animals. It’s a phrase to describe the human emotions that drive financial decisions—things like confidence, hope, fear, and pessimism. When people are optimistic and confident about the future, they’re more likely to invest their money and take risks, which pushes the economy and the stock market up. That’s the power of positive “animal spirits.”
So, Are We Talking About a 25-Year Bull Market?
The big idea from the podcast was that these positive “animal spirits” could fuel a long-term bull market. In fact, they floated the idea of one that could last for a couple of decades!
Lila: Okay, another one for you, John. What exactly is a “bull market”?
John: Think of a charging bull, with its horns pointing up. A bull market is when the stock market is in a long-term upward trend. Prices of stocks are generally rising, and investors are feeling confident. It’s the opposite of a “bear market,” where you can picture a bear swiping its paws downward, and prices are falling.
One interesting point they made is that recoveries from market downturns seem to be happening faster than they used to. When the market takes a dip, it bounces back quicker. This might be because information travels instantly now, and the people in charge of the economy (like the U.S. central bank, called the Fed) can react faster to try and calm things down.
What’s Fanning the Flames of Optimism?
So, what could possibly keep a bull market running for so long? The discussion pointed to a few key factors, including deregulation and the strength of the U.S. dollar.
The Pros and Cons of Deregulation
One of the potential fuels for economic growth is deregulation.
Lila: “Deregulation”… that sounds important but also a little boring. Can you break it down for us?
John: Of course! Imagine the government puts a lot of rules on how a company can operate—like safety rules, environmental rules, or financial rules. Deregulation is simply when the government loosens or removes some of those rules. Here’s how to think about it:
- The Pro: With fewer rules, companies can often operate more cheaply and efficiently. This can lead to more innovation, more hiring, and a boost for the whole economy. It’s like taking the training wheels off a bike—it can go faster.
- The Con: Those rules are often there for a reason! Removing too many could lead to companies cutting corners, which might cause environmental damage or create financial risks that could harm everyone later. It’s a delicate balancing act.
The idea is that if deregulation is done smartly, it could help businesses thrive and support a long-term bull market.
What the Dollar Tells Us
The podcast also mentioned “zooming out on the dollar.” This just means looking at the long-term value of the U.S. dollar compared to other currencies around the world. A relatively strong and stable dollar is often seen as a sign of a healthy and reliable economy. For global investors, the U.S. is often seen as a safe place to put their money, and that confidence helps support our markets.
If the Market Is So Great, Why Do I Feel Squeezed?
This is where the conversation got really interesting. It shifted from the big-picture stock market to the reality of our everyday lives. And for many, there’s a huge disconnect. The podcast brought up a fascinating paradox: people earning a great salary, say $250,000 a year, who still don’t feel rich.
How can this be? It comes down to the simple fact that life has gotten incredibly expensive. Even with a high income, many families are feeling the pressure from all sides:
- Housing: Whether you’re renting or trying to buy, housing costs in many areas are sky-high. The podcast even touched on the “worst housing market in America,” highlighting how tough it is for people to find an affordable place to live.
- Car Payments: Did you know some people are now facing car payments of $1,000 a month? A reliable car, which is a necessity for most families, has become a major luxury expense.
- Taxes: The hosts also brought up the topic of taxes. While it often feels like our taxes are high, the systems can be complex. The point was that even after taxes, the money left over doesn’t seem to stretch as far as it used to.
- Everyday Costs: Groceries, gas, childcare… you name it, it’s more expensive. This slow creep of rising prices is what we call inflation.
So, while your investment account might be growing in a bull market, your monthly budget is fighting its own battle against rising costs.
A Tough Start for the Next Generation
This financial pressure is especially tough on young people. The podcast mentioned the weak job market for recent college graduates. Many are leaving school with high hopes and a mountain of student debt, only to find it difficult to land a good-paying job in their field.
Combine that with the incredibly difficult housing market, and you have a generation that’s finding it harder than ever to achieve the traditional milestones of financial independence, like buying a first home. It’s a stark reminder that a booming stock market doesn’t automatically translate to prosperity for everyone.
A Little Historical Perspective
To put our modern worries into context, the discussion took a quick detour back to life in 1776. Can you imagine? No electricity, no modern medicine, no internet. A “bad day” back then meant something entirely different. This isn’t to dismiss our current struggles, but to offer some perspective. The economic opportunities and standard of living we have today, even when we feel squeezed, would be considered unimaginable wealth just a few centuries ago. It’s a good reminder to “zoom out” not just on the dollar, but on our lives as a whole.
John and Lila’s Final Thoughts
John: For me, this conversation was a perfect example of how the world of investing and the world of personal finance can sometimes feel like they’re on different planets. It’s exciting to think about the potential for long-term market growth, and it reinforces why a patient, long-term approach to investing is so important. But it’s also a wake-up call that we need to be just as diligent with our day-to-day budgets, because the cost of living is a real and present challenge.
Lila: From my perspective as someone still learning, it was really helpful to hear that it’s normal for things to feel confusing. The news might say the economy is strong, but my friends and I see the struggle to find affordable apartments. Understanding that both a strong market and personal financial struggles can exist at the same time makes a lot more sense now. It’s not just one or the other.
This article is based on the following original source, summarized from the author’s perspective:
Animal Spirits: A 25 Year Bull Market