In an uplifting time, light things are lifted up, and it’s easy to confuse the lightness as well as the lifting for something that is substantial. From the mid-80s through the next fifteen years, the markets experienced an unprecedented bull run that caused many of its participants to consider such a trend normal, on one hand, and their own investment acumen noteworthy, on the other. A two-year correction followed, but that was quickly brushed aside because the next five years seemed like a continuation of the previous pattern. Setting temporal boundaries is an arbitrary exercise, and we commonly think in terms of beginnings and ends of decades as though such milestones would hold concrete significance, as though generations begin and end around periods marked by ’0s on calendars. On that basis the past ten years have been referred to as a “lost decade” – a term that wittingly or unwittingly echoes the “lost generation“ between world wars – and in such lost periods people allegedly learn lessons, presumably in humility. If only.
We are reminded about the generation (and the way of thought) that still determines markets when we see headlines about bullish sentiment registering all-time highs. In an era that holds witness to unemployment not seen since the Great Depression, deficits and national debt not seen ever, and economic growth that is barely pushed along by an accounting quirk and (unsustainable) government spending, the bull and bear cases should at the very least be debatable. That bullish sentiment is as widespread as it is can only really be explained by generational factors described: Markets go up, corrections happen, markets bounce back, acumen comes easy. We are the generation of investors born out of Gordon Gekko chic, when finance was all the rage and Wall Street was even cooler than entrepreneurship.
There was a chance, during the past two years, for a different lesson to be learned and, perhaps, for a new generation of thought to emerge. Had markets run their natural course, undoubtedly this would have happened. But markets were manipulated – which is not an inflammatory observation but merely a statement of public policy – and these actions created outcomes that reinforced our set ways of thinking: Markets go up, corrections happen, markets bounce back, acumen comes easy. Who knows but this is the new reality of things. Maybe analysis, dissection of line items, scrubbing data, scouring the fundamentals, are all exercises that miss the mark completely when the only variable that matters is QE2 and its assortment of international cousins. But maybe, on the other hand, the reason that economic disruption does happen, and the reason that markets don’t only go up, is that fundamentals do matter. These can be glossed over, but not altogether escaped.
Heading into the new year, and this being a time for resolutions, I resolve to do as follows, and any who care to join me are welcome to tag along: I will make an effort to remember that the world did not begin in 1984, nor 2007, but is a continuum that began quite awhile back. I will scrutinize economic results and financial announcements beyond the headlines, as these may be contradictory and headlines are meant to manipulate attention. I will assume that money is not of unlimited supply because it can be printed, debited, credited, or wired, and that even outside of a gold standard money and the economy have to be rooted in something. I will remember that information exists and is available. I will remember that boundaries around market eras are artificial and that bull markets, bear markets, corrections, are matters of arbitrary perspective. Most of all, I will remember that during my own generation there have been enormous economic, social, and technological changes worldwide, and there are always occurrences that were once unimaginable.Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.