There is a difference between current uncertainties and the miscellany of bubbles and bursts of recent past. “The wall of worry today is bigger than almost any other time I can remember,” one money manager was quoted, describing the market mood on a given day, and I think this fairly captures the atmosphere. We’ve all seen moods and market swings before, but this time I don’t see panic as much as sobriety, and there is a difference between the busy anxiety that may lead to swings and increased volatility on a daily basis, and the more pervasive undertone that “worry” accurately describes. The latter, in a certain way, is a more adult sentiment, and a “wall of worry,” in this sense, could be a healthy trait and one that would have served us well in previous times.
None of the last three decades’ gyrations – not October 1987, not October 1989, not the S&L and HLT crises that followed, not the LTCM fiasco, or the tech bubble that burst in 2000 and continued bursting through 2002, not even the sub-prime driven collapse that took down Bear, and Lehman, and for all intents Merrill Lynch – none of these were characterized by the mood that we now sense. Despite – or possibly because of – the current scenario not being an actual crash, not a sharp and clearly delineated downturn, perhaps not in actuality even a recession anymore; despite – or possibly because of – there being no loud thunder, rupture, or torrential downpour, but rather a pervasive cloud that lingers, observers seem now to be taking a more profound look into the atmosphere, and the complexity is often overwhelming.
In the series of market crashes and disruptions listed, the impact was either short-lived, or was otherwise felt in isolated patches, and as a result there was a tendency, I think, to brush things off as if another blip from which we would recover and soon get back to business as usual. In fairness, events more or less played out in just this way. When LTCM went down, this did not cause 8 million jobs to be lost. When markets crashed in the 1980s, they very quickly recovered. When Lehman collapsed, it became Barclays Capital. It is true, when we were living through such events, the impact did not feel minor, but realities did seem confined to a time, or a particular field, and we rarely stopped to take notice of perilous undercurrents that were continuing to grow.
When we hear about sovereign nations, however – in the European Union no less, which is to say, in a developed market – being downgraded one after another, this drives the point home and surpasses the status of misclassified securities or undercapitalized banks. When this occurs less than two years after the banking crisis, the memory still lingers too distinctly for some not to interpret the scenario as a continuation, but on an even larger scale. And the message that for many seems now to be sinking in for the first time, is that we may be witnessing a significant and long-term global transformation – which has been a long time coming, and may take a long time to play out.To be clear, this is not a commentary about economic science, or about market valuation, but rather about tone. Markets have recently corrected, but every so often they’ve bounced. Economic data is not pointing to further erosion, and is in fact pointing to a mild recovery. Some jobs are being lost, and a few are being gained. Perhaps we are moving sideways, or even slightly up. Regardless, the “wall of worry” is real as we catch glimpses of what lies in store around the corner and along the road ahead. When a prominent and visionary web 2.0 venture capitalist speculates on the relative merits of gold vs. real property positions in a well constructed portfolio, we know beyond doubt that the atmosphere is pervasive. We make a concerted effort to reflect upon the iPad and the iPhone 4, but it is difficult now to turn a blind eye to the greater issues. Our federal budget deficit as a percent of GDP is almost ten times bigger than it was three years ago. California is nearly bankrupt. That we are now paying attention, at last, may be the first positive development – on a fundamental level – in a long time.
Disclosure: No positions.