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So Much for the End of the World

So Much for the End of the World

As I write this, the Dow and S&P 500 just closed out about on another post-Financial Crisis peak (if you can pretend for a second that the Financial Crisis is over). The S&P 500 needs another 14.61% and the Dow needs another 8.7% and each will be setting all time record prices. Not only that, but the fundamentals behind the underlying stocks are on a whole lot healthier than they were when we were at these levels a little over four years ago. Their underlying companies are on average far more profitable than they were, far more capitalized than they were, credit is far cheaper, there’s less competition, labor is cheaper and demand is more likely to go up after a period when it’s been down. The amazing thing is that we have been told that the end of the world is coming during the whole time, especially during the recovery. General wisdom (which is never that) has been to not be in stocks the past few years. From the March 2009 low until now, these market indices have gone up by around 85%. All the while, the media has been telling us that

(1) Municipalities were going to start defaulting in the hundreds of billions, particularly California

(2) The US downgrade would make Treasury yields to go through the roof and it would be a permanent drag on our economy

(3) That the auto industry was a zombie that will never be able to survive without government help

(4) That the FDIC fund was going to run out of money and would need cash infusions

(5) That the European Union was going to dissolve and go back to their individual currencies.

I could go on. It’s amazing that during all of this bad news, maybe one would expect the market to go down 20%; that would be understandable. Or, many investors would probably be relieved that in such an environment of prevailing fear if their stocks simply didn’t go down and they got a 0%. No, what’s astounding is that stock prices have very nearly doubled in price.

My general observation of history is that the world doesn’t end and that whatever people are worried about today, as bad as it seems, it’s probably not going to be the end of prosperity as we know it. The world is far more resilient in its progress than anyone believes at the time. There is a constant rhythm to history: the markets go down, the media reports it as the end of the world and as they do, the markets recover and set some more records … and then the markets go down, the media reports it as the end of the world, etc. Since World War II we’ve had 13 bear markets (a decline of 20% or more), and so far we’re 13-0 for this pattern. All scary things are merely the apocalypse du jour.

And now, also as I write this, there are more apocalypti (humor me in the delightful irony of pluralizing this word) on the horizon. Will Israel preemptively attack Iran? If there is a war, will we get involved? What will it do to oil prices? Will Greece, alas, default (or Ireland, Italy, Spain or Portugal)? Will the EU stay together? Will our massive deficits ever come back down to earth? Who will win the election? Will America find its demise if the candidate you don’t want to win, wins the election? I certainly don’t know, but based on experience and history, my guess is that most of these won’t happen and if they do they are more likely to not be the end of the world and at most a mere hiccup in humanity’s permanently charging progress.

It is nothing new for people of the present day to worry that the next generation will not have it as good as them (your parents thought that about your generation too). Yet, with rare exception (usually in politically suppressed geographies), each generation improves upon their parent’s standard of living. At a minimum, the odds are far better that the world will keep progressing than not regardless of whatever the fear of the day is.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

 

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