CAC 40 (France) - down 50.5%.
FTSE 100 (UK) - down 51.9%.
S&P 500 (U.S.) - down 40.3%.
Hang Seng (HK) - down 54.0%.
MSCI Emerging Markets - down 62.0%.
S&P/TSX Composite Index - down 32.8%.

These are year-to-date market returns up until last Friday (all in U.S. dollars except Canada).  

It is interesting that the commentary around those numbers often leads to the conclusion that investors must revise downward their future return expectations.  That sounds obvious given the historic times we’re going through, but it is totally wrong-headed.  The recalibrating should involve dialing up return expectations for the next few years. 

Last week I was on a panel at a conference hosted by the British Columbia Securities Commission.  I was asked whether a 10% return was a realistic expectation.  I woke a few people up when I said that I thought it was quite achievable in the medium term.  Of course, I went on to say that long-term returns are anchored by the prevailing level of interest rates (3-4%), such that 6-9% is a reasonable range to use for equity returns. 

Now I’m not suggesting that we’re going to make up all the lost ground in the next year or two...it could take many years.  But I do think from this low base, portfolio returns will be quite attractive.  Good markets are built on a foundation of poor earnings reports, low valuations, wide credit spreads and fearful investors. 

Three years from now I may be back in the mode of talking down return expectations (Get a Reality Check Folks: Those Low-risk Big Yields are History), but that isn’t appropriate right now.