It’s quite a world we live in. The (satirical newspaper) The Onion earlier this week proffered investing advice as good as anything I’ve seen on any financial news source this year: Report: Only .00003% Of Things That Happen Actually Matter.
This is so true for investing it’s almost (ahem) a joke. People fret over so much nonsense and minutiae each day in the market. For long-term investors trying to build wealth over time, the simple reality is at least 99.99% of what gets reported out there is mere noise or beside the point. And in the focusing on noise, it’s easy for folks to simply overlook what matters: stocks up nicely this year as earnings increase, in the context of what’s been a strong and long bull market, seeing new all-time highs in many spots.
Always and everywhere with financial and economic news, ask yourself if what you’re reading really matters.
Legendary investor Sir John Templeton has a famous quote that still rings true:
“Bull markets are born in pessimism, grow on skepticism, mature on optimism, and die of euphoria.”
I have a new wrinkle. For today’s hyper-media-inundate-you-with-data-all-day-every-day era, somewhere between skepticism and optimism comes fatigue. And it’s bullish.
Stories have recently asked why CNBC’s ratings have tanked. In my view, you watch CNBC for two reasons:
1. You’re terrified of seeing what bad thing will happen to your investments next, but you can’t look away. Like a train wreck. (Hello, Financial crisis and Eurozone meltdown.)
2. You’re euphoric, and want to see how much your account will rise today. (Hello, tech boom, housing boom, etc.)
Investors aren’t any of these things right now. I think they’re just…fatigued. Fatigued of Middle East fears, Fed QE fears, of US debt/deficit fears, of Eurozone ills, of all of it. These things have been around for years now, and have lost much of their bluster power. Many aren’t so bullish, they’re just tired of spending so much energy worrying.
In my opinion, fatigue in this environment is bullish. It means there’s plenty of room for markets to rise and most still haven’t appreciated record earnings, and other meaningful positives out there.
…the world gets a cold.
I’ve read some version of this notion off and on in the financial media for the last week. Which reminds me of decades past where folks would speculate that if the US didn’t do well economically then the rest of the world wouldn’t either. We seem to be getting a new version of that with China now.
Don’t let it fool you. China continues to contribute nicely to global growth and that’ll help prop equity prices. From MarketMinder this week:
“…slower growth” is something of a misnomer. Yes, if China hits the full-year target, in percentage terms, growth will be slower than 2012’s 7.8%. But in dollar terms, it will accelerate—a $339 billion increase, compared with 2012’s $327 billion rise. Should China match the target for the next few years, the dollar-based gains get bigger and bigger—and higher than the dollar gains seen when the growth rate exceeded 10%. The slower growth rate isn’t a sign of weakness. It just means China’s growing off a much bigger base. In fact, China could miss the target and still add significant value to the global economy and be a key source of revenue for developed-world companies—what ultimately matters for stocks.” – Cracks in the China?
Through most of the last decade, I answered an interminable number of investor questions about whether the weak dollar would destroy the very foundation of our world. (I exaggerate, if only slightly). Now that the dollar is showing some ballast, we get this: P&G to Apple Hurt by Strong Dollar Keep S&P 500 Profits in Check.
Look, I don’t care which way you fall but someone needs to cry foul when we perceive both a strong and weak dollar to be bad. In reality, we’ve had plenty of bull and bear markets in both strong and weak dollar environments, and in my view dollar direction doesn’t generally tell you much about what stocks are likely to do.
Currencies matter. A lot. But don’t get too far lost in this quagmire when it comes to judging the stock market.
If you’re like me, you get annoyed ubiquitously by the clichéd, overused, nonsense, nondescript lingo central bankers, central planners, politicians, and guru economists routinely employ. My current most peevish is “downside risk.” As in, “Currently downside risks for the economy are stronger than a month ago.” Or, “We see downside risk abating in the intermediate term.”
What does this mean? It means nothing. It’s gibberish. In the era where central bankers claim to be more open kimono, what they really are doing is just saying more words. The opacity is the same, as depicted by the current—and bizarre—speculation over “tapering” clogging today’s financial headlines.
When you see this stuff, don’t try to read tea leaves. Just ignore it until there is something concrete to form an opinion.
Looking at history and the long waves of demographics is a great and fine thing. It can tell you a heck of a lot. It’s frequently the case that history is driven by large, abstract, impersonal forces rather than singular decisive events. But…
…to start forecasting equity markets using these metrics is a perilous thing. And it’s becoming all the rage lately.
The problem with demographics as equity market forecasters is that, first, in order for you to be right, you might have to wait, you know, a generation or more. Also, even if you can shoehorn a theory to explain all, at best you only have a few good data points to support the correlation tied to equity markets. That’s not much to stake a +20 year forecast on.
It’s an old adage: Investors have short memories. Another: the market discounts the future.
Here’s some interesting psychological research as to one reason that may be: Yesterday came suddenly
“Because future events are associated with diminishing distance, while those in the past are thought of as receding, something happening in one month feels psychologically closer than something that happened a month ago.”