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PERMANENTLY BEARISH COMMENTARY

* May 25, 2016

“May you live in interesting times.”

The world is a pretty amazing place, moreso today than ever before. We have instant-on, ready access to more information that even existed 100 years ago. Better research, more powerful computing, more data, more robust data and more analysis of that data are all in my pocket (okay, plugged in to the charger on my desk) at this exact moment.

But I’m not sure what we’re really doing with all of it. It seems to me that in a post-crisis world, cynicism and bearishness are very much en vogue. As Morgan Housel pointed out previously, if you want to sound smart (and who doesn’t), doom and gloom is the way to be. We’re in a world of permanently bearish commentary.

You can’t turn around without running into 10 reasons why 10 experts say the next market crash starts tomorrow. And it’s not just spring 2016. It’s been this way every day since 2008. The turn of the bull market in early 2009 was just a dead cat bounce. Then calls that earnings couldn’t keep pace with the rising market. Then, margins were too wide. Then, durable goods too low. Then, only because of QE. Pick a quarter, find an explanation for why the sky will come crashing down. Right now I could probably give you a dozen without trying. The Fed, the Dollar, the election, China, Greece, Brexit, earnings misses, increasing labor costs, stubborn inflation, higher minimum wages, Silicon Valley bubbles, lazy millennials. Pick your poison.

Anyone with a permanently long-term bullish outlook is scoffed at, considered a fool. Markets are all fake, they say. Robots are coming for our jobs, they say. Or China. Or Mexico, I can’t keep it straight anymore. Everything is a bubble if it goes up in price. Venture capital, stocks, real estate, commodities. It’s as if you can’t publicly acknowledge that there are fundamental reasons for asset values to go up over time. If it goes up, it’s a head fake. If it goes down, that’s the real value.

I understand that fear sells, but didn’t euphoria used to sell? What happened to Dow 36,000? Is it that because we “learned our lesson” after 1999-2000 in stocks and 2008-2009 in real estate and now we keep everything in check? I’m all for reasonable expectations, but it feels like the only acceptable reasonable expectation is 0% forward returns with lots of accompanying volatility. We’ve gone from everybody thinking they can make a killing day trading to everybody thinking stock returns will be 1% for 100 years without pausing anywhere in the middle.

Perhaps two massive asset class boom/bust cycles in 10 years was too much for our collective pysche. Sure, US stock prices are up 200%+ since the 2009 bottom, but where were the cheerleaders outside of Warren Buffett and Jeremy Siegel? We never had rational exuberance, let alone getting irrational about it.

So here’s my permanently bullish thought: The world is going to keep getting better in the long run. But practically any measure global wealth and well being will improve over the rest of my lifetime, and my children’s lifetimes. Along the way there will be panics and crashes and bubbles and politicians you hate and horrifying global events. Asset prices will rise and fall and rise again, because that is what asset prices do. Competitive corporations will seek new ways to increase revenues and profitability. Many will fail. In a long enough time period, any single company is all but guaranteed to fail. But the collective whole will succeed, and shareholders will benefit. If this all sounds a bit too Pollyanna for you, maybe long-term investing in stocks isn’t for you.

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