Michael Burry is a hedge fund manager who gained fame when he bet against the housing market in 2008. When the market collapsed, Burry made a fortune, and that cemented his reputation as a market seer. Burry was later portrayed as the central character in Michael Lewis’s The Big Short.

But in the years since, Burry’s predictions haven’t turned out as well. Five years ago, he spooked index fund investors when he argued that they might have trouble accessing their funds. “The theater keeps getting more crowded,” he said, “but the exit door is the same as it always was.” That scenario never materialized. Over the years, Burry has issued other warnings. During the 2022 downturn, he predicted that things could turn out “worse than 2008,” and in early-2023, he summed up his thoughts in one word: “SELL.” The market’s gone much higher since all of those warnings.

I don’t mean to focus only on Burry. Few investment prognosticators have reliable track records. But this presents a conundrum: We know that we can’t predict the future with any precision, and yet, in making financial plans, we need to make some assumptions about the future. And to do that, our only and best guide is to consult historical data, even if we know that the roadmap it provides is necessarily imperfect. That’s why, as we begin the new year, I think it’s worth examining some of today’s key trends and thinking about where they might lead. We can look at two areas in particular where there’s considerable debate.

The main question investors are asking today is: What should we make of the U.S. stock market? By virtually every measure, it’s expensive. Over the past 15 years, the S&P 500 has returned an average of 14% per year, far above its long-term average of 10%. As a result, the market’s price-to-earnings (P/E) ratio, based on estimated earnings, now stands at more than 21—significantly above its long-term average of about 16. According to another popular P/E measure known as the CAPE ratio, stocks today are more expensive than at any point in history other than 1929 and 2000. A projection by Clearnomics, based on the market’s P/E ratio today, implies that stocks will lose an average of 1.5% per year for the next decade.

In contrast, virtually every other market outside the U.S. looks like a bargain. International stocks have significantly trailed their peers in the U.S. As a group, the P/E ratio of stocks outside the U.S. is just 13. To some, the conclusion is clear: Rational investors ought to shift their holdings toward these cheaper international markets. If these valuation figures are worth anything at all, it would appear to be very unwise to be complacent about the U.S. market.

That’s one point of view—but not everyone agrees. According to one very reasonable analysis, there’s good reason for domestic stocks to be so expensive. In short, it’s because the technology companies that dominate the domestic market are far larger and far more profitable than their international peers. It’s become a bit of a cliche to talk about the Magnificent Seven stocks that lead the U.S. market—Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta and Tesla—but the fact is that most other countries don’t have even one company that’s in the same league as these seven.

Another factor that could justify the U.S. market’s lofty valuation: As a recent writeup points out, many economies outside the U.S. have been ailing more or less continuously since the financial crisis in 2008. Many of the countries in the European Union have struggled with sovereign debt issues and with stubbornly slow growth. These issues may be structural rather than temporary. Recall, for example, the violent protests in France a few years back when the government proposed shifting the retirement age from 62 to 64. For better or worse, attitudes toward work differ from country to country, and ultimately that flows through to corporate profits and thus to stock prices.

Which way will things go? Without the benefit of hindsight, no one can say. But as investors, it’s critical to be aware of—and to keep an eye on—this question.

A related question has to do with economic growth. Population growth is a key driver of growth because, in simple terms, a growing population provides a larger base of consumers. That allows companies to grow their sales and profits. But population growth in the U.S. has been on a troubling downward trend for decades. The population today is growing at about half the rate it was 30 years ago. And this trend is by no means limited to the U.S. If this continues, growth may be slower around the world, and it stands to reason that this could translate into lower stock market returns. It would also have other negative effects. For example, with fewer working-age taxpayers, government budgets could be strained, as would the Social Security system.

But again, this is not a foregone conclusion. In the 1990s, worker productivity boomed, a result of the widespread adoption of the Internet. That led to rising wages, rising stock prices and a vastly improved federal budget situation. In 2000, the government actually ran a surplus, albeit briefly.

Could something similar happen today? There’s some initial evidence that artificial intelligence has started to contribute to an uptick in worker productivity. This could be enormously valuable, because productivity improvements allow companies to increase profits, giving them the option to raise wages or to reinvest in their businesses. Either way, it would have a positive effect on the economy and on stock prices.

It will take some time to know how real this is, and whether it continues. But this too is a trend that’s worth keeping an eye on. If the second half of the 2020s ends up looking like the second half of the 1990s, the positive implications could be significant.

I’ll acknowledge that I may have raised more questions than answers, so where does this leave us? In a recent report, Cliff Asness, founder of AQR Capital, took a lighthearted approach to this question. His report was titled “2035: An Allocator Looks Back Over the Last 10 Years.” In other words, it’s written from the perspective of an investor looking back over the 10-year period starting today. He reviews each asset class, from stocks to bonds to private equity and cryptocurrency. His conclusion: Markets change, but human nature doesn’t. His prescription: We should be wary of complacency, wary of storytellers and especially wary of any argument suggesting that “this time it’s different.”

What does this mean for investors? The key, I think, is to strike a balance in our thinking. Yes, markets can and do change, but we should also stay grounded, remaining mindful of basic economic rules that don’t necessarily change. And recognizing that things could go either way, perhaps the most important thing is to ask whether our finances are organized such that we could withstand whatever outcome the market delivers.​