My Comments: Readers of this blog post over the past six months have noted my concerns about a coming market crash and what it might do to your ‘nest egg’. Perhaps you remember my comments about a wall of worry, a phrase that gained traction in past years as the market climbed and climbed and climbed. The image here is a chart of the S&P500 since the major dip in 2009. You will have to decide if it’s real or whether it’s different this time.
James Osborne, Nov. 18, 2014
“The market climbs a wall of worry.” You’ve heard it hundreds of times. It sticks around because it’s true. And we know it is true, at some level. But it is always in the moments of true worry that we want to discount this (and all other) time-hardened wisdom.
Because we will forget, here’s what the Wall of Worry has looked like over the past five and a half years.
a) Unemployment is 9%. Corporate earnings fell 90% over the last 12 months. 10 major banks went bankrupt or sold at fire-sale prices in the last 9 months in the United States alone. The ultimate blue chip GE just announced it is cutting its dividend by 66%.
b) Unemployment is still going up! The US Dollar is absolutely tanking. There’s no way this dead cat bounce is legit.
c) Deficit spending is out of control! We are on a path to ruin.
d) Dodd-Frank will cripple the financial industry and permanently slow economic growth.
e) The US is going to hit the debt ceiling and default on its obligations. We will lose our position as the world’s reserve currency and life as we know it will be over.
f) The “Arab Spring” is destabilizing the Middle East and will lead to international war.
g) China’s “hard landing” will have a ripple effect on the global economy, which is not strong enough to take such a big blow.
h) Greece. Italy. Spain. Portugal. The Euro is a failed experiment. The “Grexit” will cripple already-weak European countries. A lack of stability will lead us all back into a global recession.
i) Too much “uncertainty” surrounding Obamacare is preventing US companies from reinvesting in their own growth.
j) More “uncertainty” surrounding US politics as we head into the 2012 elections. If Obama wins, the country’s economy will be in tatters.
k) North Korea is threatening the world with nuclear weapons. It’s not “safe” to be in the markets.
l) The Boston bombings claim the lives of 3 people and injure hundreds more.
m) Unable to produce a spending bill, the US Federal Government shuts down. Our country is clearly too dysfunctional to invest right now.
n) Russia invades Ukraine. We are on the brink of a possible global war. Only fools would be invested now.
o) Ebola outbreaks reach the US. A spread could decimate the global economy.
Let’s not forget that all along the last five years we’ve had hand-wringing over unemployment (which was over 9% two years after the recession ended), home prices, wage growth, Fed activity, lazy millennials, idiot politicians, global unrest, trade imbalances, peak oil (and now the horrors of falling oil prices), and my favorite, endless “uncertainty.”
So when the next bear market comes, when things get scary again and you try to tell yourself that it was “easier” back in the bull market, pull this back up. It’s never easy. There is always uncertainty. There is always a great reason to sit on the sidelines and wait for better economic conditions. Except that the better conditions never come, and in the process you miss the incredible power of long-term compounded returns.