There’s definitely something in the air. The question du jour from clients seems to be, words to the effect: “Do you think the market’s about to crash?” or “I think the market’s about to crash, what do you think?”, or “my kid in Connecticut says everything’s about to crash and that we should sell everything now, what do you think?” or some other iteration of “the sky is about to fall, I can just feel it!”
I guess the quote I offered up in my last blog post –
"Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria."
– should have me feeling pretty sanguine, if, that is, the rest of the world shares our clients' (well, some of our clients') angst.
Now, I can present you with the contents of what I call my “macro file”, which is where I once-a-week record everything from weekly unemployment claims to housing starts to consumer sentiment to industrial production to scrap steel prices to the cost of shipping dry bulk across the world’s oceans and to lots of other stuff. And I can tell you that if – as they’ve been in the past – enduring crashes are things of global recessions, while anything can happen at any time, I’m just not feeling the gloom. I.e., while a bit more yellow’s been popping up the past few weeks, there’s enough green in key indicators to keep me feeling pretty okay about maintaining a cyclical bias, in terms of the equity exposure, in our client portfolios.
So what gives? The stock market’s been a little better this year. Why all the fear? Well, there’s the election (and the attendant battles on how if the other side wins we're all dead), and, while every four years I remind myself of how frustrated I felt four years earlier, this one I truly believe takes the cake! But here’s the thing, the election is just a few weeks away and, well, the market knows all that stuff. If the choices are truly one of union domination, the demise of the pharmaceutical industry, a 65% estate tax rate, corporate death by regulation, an ever-exploding budget deficit, and free everything (nothing, by the way, is more expensive to the citizen at large than that which he/she can get free from the government) – versus – a walled-in economy, a, therefore, compromised labor pool, tariffs on hundreds of billions worth of goods we buy every year, unregulated corporate greed, an ever-exploding budget deficit, and free everything (“), well then, my friend, the crash you fear would already be upon us.
Either the market suffers from severe myopia, or it knows the character of politicians and knows the winner won’t even begin to get “it” done, even if he or she truly wanted to.
Reminds me of something I wrote back in January 2014 when France’s socialist president – who rode to power on the most populist of platforms – found himself presiding over Europe’s weakest economy. The title of that blog post included an utterance from the man himself at a news conference earlier that week:
“How can we redistribute if there is no wealth?” French President Hollande, of all people…
Yep, merely two years after his landslide into office, he found himself backtracking in a very big way. Here’s my closing paragraph to that article:
Yes, promising the moon wins elections---we've witnessed that a lot of late. But, like I said the other day, the moon is---fortunately, ironically, for the promiser's political career (and the promisees' livelihoods)---unreachable. Although, as France's president is discovering, the air can get mighty thin even as you head in that direction---particularly in a country that was half way there to begin with. Ah, but Hollande, like all politicians, is of the family Chamaeleonidae: while campaigning in 2012 he donned his socialist colors and slid his way to office. Today, he senses danger. Survival going forward means blending with the folks whose vilification was so effective on the stump. I.e., he has come to understand that the economy will break him if he doesn't break his government's stranglehold over French businesses...
I’m thinking that my sentiment then – with regard to the unkeepability of campaign promises – is roughly what the market’s sentiment is now. Not, mind you, that there won’t be a few fireworks along the way!
Have a great weekend!
P.s. For more on why fear is good for the market, read Wednesday’s post, if you haven’t already.