The Playoffs: End-is-Nigh v. Faith-KeepersInnovative Portfolios Editor
Among the talking heads, the pessimist “market mavens” are out in force again, spewing out word salads of unusual terms.
“It makes them sound almost undoubtable,” admits Innovative Portfolios co-founder Dave Gilreath, with terms such as quantitative lightening, backwardation, demand-push, earnings drought, and Fibonacci lines. Meanwhile, since stock market performance and investor psychology are mutually dependent, investors’ belief that the trend will continue helps perpetuate a downward spiral. Within the storm of negative sentiment, it can be difficult to keep the faith. Yet faith, Gilreath reminds readers, is what bullish investment folks rely on — faith in corporate resilience, human ingenuity, and the awesome power of capitalism.
Of course, faith notwithstanding, quite a number of those past glaringly bearish predictions have “come true” over the past two decades:
- In the spring and summer of 2002, there were dramatic declines in stock prices, reaching a final low in mid-March 2003.
- 2007 and 2008 were years of financial crisis, with many failing banks.
- In 2010, the Dow Jones Industrial Average suffered a nearly 1,000 point drop.
- In the summer of 2015, there was a plunge in stocks and in commodities.
- 2018 marked a cryptocurrency crash, with a concurrent drop in stock values.
- 2020’s stock market decline was COVID-induced.
Now, in 2022, the bearish predictions proliferate, calling attention to the Ukraine war, political unrest, nuclear threats, and nonstop price inflation with the resultant decision to raise interest rates. The talking heads are back with the smart-sounding terminology, talking of yield-curve inversion, reversion-to-the-mean, and balance sheet reduction. It’s interesting, Innovative’s Gilreath observes, to contrast two “smart sounding bears” (author Harry Dent and asset manager Jeremy Grantham) with “faith-keeper” Warren Buffett.
With each having a long history of gloom-and-doom predictions, Harry Dent is now saying, “Get out of the way of the crash,” while Grantham shouts, “Superbubble yet to burst in epic finale.” It’s instructive to realize that Dent published The Great Depression Ahead in 2009, Dow 5000 in 2016 (the Dow was at 18,000 at the time), and Zero Hour in 2017, predicting a crash during Trump’s term. Over the same time span, Grantham made predictions five times in Business Insider of a market bubble.
In contrast, Warren Buffett continues to state that market downturns are the best time to look for good companies that are undervalued.
From the vantage point of a forty-year End-is-Nigh v. Faith Keepers “game” spectator, Gilreath notes that 2022 looks remarkably similar to previous midterm election years, with “lousy Q2 and Q3 results.” Allowing for the fact that past performance is no guarantee of future results, since 1946, he reminds investors, the twelve months following a midterm election have been positive for the S&P every single time.