- Following recessions and big bear markets, it's normal for bearish doubts to linger.
- Fears of a "double dip" recession are normal, and the existence of such fears isn't evidence they are valid.
"Supporting most bears right now is a bunch of bull: namely the notion that too much debt will bite us in the butt. Ever since last fall, the guts underlying gloom-and-doom market forecasts have been disproven one by one. Excessive debt is the main argument that the bears still hug.
Which is one reason the bull market has a good long way to run; the bears are basing their case on a wrong argument. Debt doomers come in various styles. There is the banking crisis style and the real estate implosion style—often linked, as in ‘falling real estate prices will bankrupt the banks, which will cause chaos.' Then, too, are those noting the ‘tapped-out consumer' who can't or won't borrow more—thereby causing an anemic recovery, or no recovery, or finally, the pseudo-sophisticate's favorite—the ‘double dip' recession."
So said Ken Fisher in a Forbes column titled "Dumb Bears" . . . 19 years ago, August 5, 1991. Yet, it sounds like it was written this morning. It was the tail end of recession. A bull market was already well underway, though most couldn't see it through the gloom and doom—fears over weak housing, banks that wouldn't lend, absent consumers, and, yes, the double dip. What did not happen next? Consumers didn't stop shopping. Banks didn't cease lending. The economy didn't stall. There was no double dip. It wasn't different this time.
Here's what Ken said next:
"Don't get me wrong. I don't recommend going into debt. Personally I owe virtually no money. Certainly there are individuals, firms, industries, and municipalities that are too heavily and stupidly leveraged and will pay for it dearly (as is always true).
However, in aggregate, debt levels won't hurt the economy or the stock market in the 1990s."
Of course, you know now how this story ended. Debt levels didn't hurt the 1990s economy or stock market. What came next was an enormous, near-decade long bull market (US stocks up 382.4%, world stocks up 231.0%)[i] and a remarkable period of global economic growth, led by the US. Yet, at the time, almost every headline and pundit was singing the same tune—America was done and we should prepare ourselves for a "new normal" of sub-par growth. Not so.
No one can predict with any degree of certainty what the next decade brings. (Anyone claiming otherwise is telling you more of what they don't know about capital markets than what they do know.) But the mere existence of double-dip fears isn't confirmation such fears are valid—they're just confirmation people routinely get fearful of stuff that turns out to be not such a big deal. And, as we frequently say in this space, fear of a false factor is bullish. With the world continuously surprising investors with its resiliency in this recovery, our best hypothesis is these fears too will be proven false. And very bullish.
For a revisit of some recent commentary underpinning our current outlook, we recommend:
Goring the Global Growth Slowdown, 09/02/2010
Beyond These Borders, 09/01/2010
Retail Therapy, 08/31/2010
Wild Wyoming and Washington, 08/30/2010
Gridlock Is Great, 08/24/2010
Dripping Away at the Double Dip, 08/23/2010
Getting a Grip on Bonds, 08/19/2010
How Strong Is Corporate America's Balance Sheet? 08/17/2010
Trading Up, 08/12/2010
Hungry Bears, 08/11/2010
Got It Made With Global Trade, 08/10/2010
Hermes Delivers, 08/06/2010
Cash Is Cheap, 08/04/2010
[i] Global Financial Data, Inc., S&P 500 total return from 08/05/91 to 03/24/2000; Thomson Reuters, MSCI World Index total return with net dividends from 08/05/91 to 03/27/2000