Look Past The Doom And Stay The Course


Bear walking with declining finance chart


Introduction: The World Is Not Ending

For months, you have heard from famous market analysts and economists that stocks are ridiculously overpriced and that buying stocks is a fool’s game. Governments have spent their economies into something approaching oblivion and deficits will swallow up everything — including your account balances. The general mood is of some predestined, multi-step descent into oblivion, and the only way out is to liquidate, go short, buy only fixed instruments… take the money and run. Go off-grid with a portable generator and some carpentry skills gleaned from some polished YouTube videos. Buy a homestead, raise your own vegetables and shoot bear, pheasant and deer to survive.

There’s no hope, just a descent to unheard of levels for the various stock market averages. The numbers fly wildly, like the Wright brothers in their first years of trial of flight on the Outer Banks of North Carolina. Buying shares is portrayed as approximately as risky as Wilbur Wright careening off some sand dune, lying prone on his beloved invention. Crashing is nearly certain and death not much less so. Let’s not forget that the Wrights crashed multiple times and that Orville Wright nearly died in one such incident that took the life of a US Army officer that insisted on joining him in a test flight in Virginia.

Jeremy Grantham, Michael Burry, Mohammed al-Arian, Mike Wilson and a cast of dozens, with semi-encyclopedic minds and rivers of facts flowing through their impressive minds, warn you of the folly of optimism in relation to this market. The array of facts and historical precedents at their mental fingertips is intimidating indeed. Devastating periods of market history are dredged up, cleaned off and packaged into very convincing bearish arguments. The “I told you so” tone of many of their comments seems to only increase their weight.

Run for the hills. The views are beautiful and the tribulations of relocation — physical and virtual — worth the transition. Do it now — before it’s too late.

Don’t. It’s true that Jeremy Grantham can reel off past bubbles and add this ostensibly crazy bubble to the list of those that pop.

Michael Burry, portrayed in “The Big Short,” sprawled out on the floor of his fund’s offices in Silicon Valley, headphones on and drinking in heavy metal music while he awaits the vindication of profit, does indeed own a wide-ranging mind and a record of past success.

Al-Arian, glib-tongued and Professorial, a Bond theologian in the manner of Bill Gross or Jeffrey Gundlach, reels off clever turns of phrase with definite relevance to the macro situation of the day. His is the voice of authority free of the plague of self doubt.

Morgan Stanley’s Wilson is fluent in the ways of numbers and can weave in inflation or interest rate raises or quantitative tightening into his monologues convincingly. His words may provoke you to remedy those personal bullish errors before it is too late.

Hear them. Consider their words and their impressive resumes, and then turn to a hobby. The world is not ending. Despite the Russian invasion of Ukraine, it keeps revolving. Market valuations are not outrageous, and while there’s dispute over the actual “global” S&P price/earnings ratio (see the Macrotrends chart, and the YCharts graphic that follows) it’s not in the sky.

MacroTrends claims a figure just above 20 and YCharts has the forward ratio at 17.4.

PE Ratio

Five Year PE Trend (MacroTrend)

Forward PE

YCharts: Current Forward PE Ratio (YCharts)

Are these appetizing levels for going “all in?” What about Dr. Shiller’s Cape ratio? It presently sits at 27.6. That should be cause for concern. Yet this is a backward-looking ratio over long periods of time when the economy was built on considerably different foundations than those of today.

Stocks are not cheap. There’s high inflation. Energy prices are volatile and likely to contribute resistance to the strategic plans of Central Banks to fight inflation – enabling them, perhaps, to cease raising interest rates. Even if inflation comes down, it will be gradual. Investors will remain nervous. The war in Ukraine will not end tomorrow, with all the attendant threat and anxiety (even for onlookers).

Still, for every Jeremy called Grantham, there’s another named Siegel.

For each Michael Burry there is a Marco Kolanovic.

The dulcet tones of Mohammed al-Arian face off against the soft-voiced Tom Lee.

Against Mike Wilson, set Brian Belski and his renewable streams of optimism.

There are no easy answers. Markets are volatile. The harder they are to read, the more passionately analysts and commentators call the short term trends. People are focused – even hyper-focused – on day to day moves. This telescoping only pushes us away from the long view.

Yet that’s the only view we should take.

Best of luck. We all need it.

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