What decade will we be living in for 2021?

Some will say that the next ten years will be like the last decade. Others may view the next ten years will be like the 2000's. What decade you think will repeat or whether this will be a new period is essential for forming any asset allocation. Defining the decade is a cute way of asking what environment will we see in the next year. 

It is natural that investors will look for analogies. What separates those who are above ordinary is the ability to define uniqueness for the next year. For example, if we look at 2010's, the economy was coming out of the GFC and was being driven by monetary liquidity through QE. It was a fragile low growth economy for most of the decade coupled with inflated financial assets. This is the decade that may likely repeat. 

The 2000's saw the tech bubble burst and monetary policy used to arrest a recession and generate a new bubble in housing. The 1990's were the period of Great Moderation, albeit punctuated by EM crises and the development of the tech bubble. Within each decade there was an underlying economic issue with a monetary policy solution of liquidity. 

The current decade is starting out with a recession and excessive monetary liquidity, but also excessive pricing in both equity and bond markets, so we may look more like the beginning of the 2000's and not the 2010's. However, in 2000, there was the problem of a shortage of long-term Treasuries and a budget surplus, forgotten themes versus today. 

The next few years are not going to be easy to classify. Yes, there have been periods of strong monetary growth and fiscal deficits, but the size combined with a change in thinking about inflation and fiscal austerity means extremes will continue. The current environment is closer to war-time finances with no limits on financial prices. 

While we may like to associate the future with some period in the past, in reality, the mix is never right. Looking to history for a glimpse of the future is not wrong, but real money is made through forming contrasts and finding the uniqueness that defines the new world.