In 1996 Alan Greenspan accidentally coined a catch phrase. It was “irrational exuberance,” and it became the identifying marker for the dot-com boom that followed.
Today his successor, Ben Bernanke, might be wise to coin a new term. “Irrational depression.”
There is ample evidence, on boards here and elsewhere, that most traders think the world is going to the dogs. Everyone has their villains. But things aren't nearly as bad as they seem.
Consider. Tens of millions of new people are joining the global middle class every year, buying things their parents never dreamt of owning, like refrigerators and smartphones. Corporations have trillions of dollars sitting around, ready to invest it when they feel the time is right. People are literally throwing money at the U.S. government, taking little or no return on it. Earnings multiples for big stocks are down to their historic baseline, hovering between 10-12.
There is also ample opportunity for investing that money. The next long-term boom has already begun.
The high price of oil puts a floor under all renewable energy, especially efficiency. It's the biggest opportunity of your lifetime, in the biggest market of them all. The technology is there. It works. The demand is there. And there's evidence of rapid change the likes of which we haven't seen since Steve Jobs was in high school.
Speaking of which, this Internet you're using continues to grow, and grow less expensive. Tablets and clouds are huge new opportunities, which will create vast new markets for content and services in their wake. Not to mention making business as a whole more efficient. This means all kinds of business, including the education business. People are getting smarter.
We've just gotten through the worst economic crisis since the Great Depression and most of us are still eating enough to stay (or get) fat. The economy is growing again. Crime rates remain low, social unrest moderate.
Yet gold remains at record highs, and every measure of bearish sentiment does too. There is an assumption built into these prices that policymakers everywhere – in China, in Europe, in America – are powerless to keep things from getting worse.
Fact is they're not getting worse, and they're not powerless. They proved that in the heat of the crisis, almost three years ago now. The fact that it's taking time to work through those market dislocations – real estate, joblessness, debt – doesn't mean they're not being worked through.
My own theory for this irrational depression is quite prosaic. Age.
Baby boomers are starting to retire en masse, some by choice and others because they have lost their last big job. It's not a happy time of life, seeing the future as a narrowing cone drifting down to a final point. It hit Japan hard, it's hitting Europe hard, it's hitting us hard.
But we're not the whole market. There is a tremendous number of young people in this world, who are more highly educated, and more tightly connected, than we ever dreamt of being at their age. They are ready to seize these new opportunities and, if you look at what has happened in developing markets over the last decade, they are indeed seizing them.
So my advice is to invest in the dreams of young people. Not Facebook necessarily, but new technologies. This might be the perfect time for someone with a venture fund to open it up to small-time investors. I'd love to get into something like that. Because most of the big money being made in equities right now isn't being made in public markets, but in private ones, in connections among universities, entrepreneurs, and venture capitalists.
That's the investment pipeline I'm watching. I'm looking around the next corner, and waiting for the next boom. You should be too. Because recessions always expose new opportunities, and always lead to new growth.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.