In discussing this chart, I made an error.  The blue line, of course, represents what the S&P 500 would have looked like had it continued its long-run annualized growth rate of 8% from the 2007 (pre-crisis) peak.  That gives us perspective on where we stand in this stock market recovery.  Even though we’re up more than four-fold from the 2009 bottom, and people continue to talk about how long this bull market has run, we still have not recovered the lost growth of the past decade.

That is clearly displayed in the gap between the orange line (the actual S&P 500) and the blue line (where stocks would be had we continued along the 8% annualized path).

What can we attribute this gap to?  Post-recession recoveries are typically driven by an aggressive bounce-back in growth.  We didn’t get it.  Instead, the post-recession growth environment of the past decade was dangerously shallow and slow.

Why?  The Fed and other major central banks were the only game in town for the global economy over the past decade. They saved the world from a total collapse, staved off further shocks along the way, and they manufactured a recovery. But the “easy money” solution doesn’t work the same in the depths and aftermath of a global debt bust, as it does in normal recessions.  The central banks could only muster stall-speed growth.

That’s why the election was so important.  It has resulted in the great hand-off, from a global economy that was just surviving on the life-support of central banks, to a global economy that has the chance to thrive on the catalyst of fiscal stimulus, and become sustainable from structural reform.

With that, we should expect the gap in the chart above to close.  That argues for much higher stock prices, and a continuation of this bull market.

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