Ever noticed how everything’s an “Age” these days? The entire developed world, it seems, lives in the Age of Austerity. Even though we’re in the Age of Stimulus (err ... the Age of Austimulus?) The UK and Japan are in the Age of Uncertainty, and Americans live in the Age of Bernanke. Investors face the Age of Hype, and exchanges can’t keep up with the Age of High Frequency Trading. And who can forget the Age of Bubbles? My friends, welcome to ... drumroll ... the Age of Ages!
If you’re sufficiently scared we’ve entered some wacky new era—err, I mean age—of frightening things, take heart: Each new “age” is code for “it’s different this time.” And with folks near-universally believing things are scary-different, it’s a good sign this bull market has room to run.
Think about what the Ages above signify: fears of monetary and economic policy, slow growth, technological change and, well, speculative bubbles. Fears investors have had since the Age of the Buttonwood Tree! Monetary policy has always been “too loose” or “too tight,” fiscal policy too stingy or profligate, taxes too high or too low. From the ticker and telegraph to computers and algorithms, technology has supposedly threatened to make markets too volatile or give certain folks an unfair advantage. And from the first Dutch tulip trade, the first share sold of the South Sea Company and the first US railroad stocks, supposed bubble trouble has been ever-present. Simply, it isn’t different this time. It never is.
What we’re left with then is a litany of plain old fears—and when faced with fear, long-term growth investors should always ask, “Are these jitters justified?”
For now, they aren’t. Today’s monetary policy fears—QE taper terror, to be specific—are backward. They see the Fed’s bond purchases as good for the economy, though data show they’re contractionary. QE’s end will be good, but folks fear it’s bad—a big false fear with wonderful surprise potential. Those fretting slow headline growth in the US tend to miss the private sector’s overwhelming strength, with corporate earnings at all-time highs and still growing. Though technology has caused a few trading glitches lately, glitches themselves are nothing new—and throughout history, the volatility associated with them has been a mere blip along the way to perfectly fine long-term returns.
And as for bubbles, data show those feared today—US housing, UK housing, Emerging Markets—aren’t. British and American home prices are rising on fundamentals—tight supply and improving demand. Emerging Markets are widely assumed to be in a late-stage Fed-fueled bubble, but data overwhelmingly show developing nations haven’t received a ton of speculative “hot money,” so their economies shouldn’t crash once QE is no more. Their growth may slow a bit as fundamentals in some countries deteriorate, but that’s not a bubble—it’s normal cyclicality, and it needn’t derail global growth or the bull market.
So when should you get worried? For one, when the Ages turn great—like the late-stage dot-com bubble, which was the Age of Clicks (sales and profits were for the old economy). Or, if you’re in a bad Age and no one notices—the late 1920s were the Age of Tariffs, but good luck finding that in an archived headline. The mid 1870s were the Age of Terrible Monetary Policy Set by Congress, but I rather doubt George Jones, Whitelaw Reid or James Gordon Bennett, Jr. picked up on this and figured out why the Panic of 1873 turned into a six-year depression. Nearly 100 years later, the early 1970s were the Age of Price Controls—but the only Google hit on this is dated 2010.
In other words, bear markets usually require deteriorating fundamentals going unnoticed—either because euphoric investors foolishly interpret bad as good, or because they’re simply looking in the wrong place and miss the big-bad. Today, we see the opposite. Fear and skepticism persist, and there are no probable big, fundamental negatives on the horizon. There are potential negatives, like creeping protectionism, but for now, the probability of this and other risks mushrooming into something big enough to derail global commerce appears low.
With big fundamental risks ultra-low and sentiment far from euphoric, long-term growth investors can likely breathe easy for some time. At least, that is, until headlines tell you we’re in the Age of Can’t-Lose Stocks.
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