In the short-run, it’s difficult to see an easy way out of the current geopolitical nightmare. The hopelessness of the day is often a precursor to the promise and eventual brighter, and better future. Most people get up in the morning looking to better themselves, better their future (Nick Maggiulli). That’s how society propels itself forward, and together. Finom Group wants to offer some great insights from savvy investors and/or strategists around the financial markets. We hope you enjoy the following excerpts from linked resources to help provide a “big-picture perspective” about current events and the most probable outcomes in the weeks, months, and years ahead. Enjoy!
“One of the craziest charts I’ve ever seen when it comes to economic data following war is GDP per capita in Germany following WWI and WWII: (Ben Carlson)
Germany experienced hyperinflation following World War I and saw its economy get decimated following World War II. Yet they had the fastest growing economy in all of Europe following WWII. They were back on trend by 1960.”
We are in uncharted territory. It feels scary and terrible. It is exactly those feelings that make the long-term opportunity so remarkable. It’s precisely when the backdrop has looked so dire that the markets have turned. It’s hard to know when that turn will happen this cycle. But, based on prior experiences the market will turn eventually and that should provide some solace. (Capital Group)
In November 1974, few people thought it was a good time to invest. The Dow had lost more than 40% from its high in January 1973. In his letter, Jim Fullerton recalled an even darker period in our nation’s history, April 1942. His remarks follow.
Today there are thoughtful, experienced, respected economists, bankers, investors and businessmen who can give you well-reasoned, logical, documented arguments why this bear market is different; why this time the economic problems are different; why this time things are going to get worse — and hence, why this is not a good time to invest in common stocks, even though they may appear low. Today people are saying: “There are so many bewildering uncertainties, and so many enormous problems still facing us — both long and short term — that there is no hope for more than an occasional rally until some of these uncertainties are cleared up. This is a whole new ballgame.”
A whole new ballgame
In 1942 everybody knew it was a whole new ballgame. And it sure as hell was. Uncertainties? We were all in a war that we were losing. The Germans had overrun France. The British had been thrown out of Dunkirk. The Pacific Fleet had been disastrously crippled at Pearl Harbor. We had surrendered Bataan, and the British had surrendered Singapore. The U.S. was so ill-prepared for a war that the cavalry school at Fort Riley was still teaching equitation, and I would guess that probably 75% of our field artillery was equipped with horse-drawn, French 75mm guns, Model 1897 (including the battalion in which I was then serving).
In April 1942, inflation was rampant. A Federal Reserve bulletin stated: “General price increases have become a grave threat to the efficient production of war materials and to the stability of the national economy.” Today there is concern about the slump in housing construction. On April 8, 1942, the lead article in the Journal was: “Home construction. Total far behind last year’s; new curbs this week to cut further … Private builders hard hit.”
Today, almost every financial journal or investment letter carries a list of reasons why investors are standing on the sidelines. They usually include (1) continued inflation; (2) illiquidity in the banking system; (3) shortage of energy.
But on Saturday, April 11, 1942 (remember when the exchanges were open on Saturday?), The Wall Street Journal stated: “Brokers are certain that among the factors that are depressing potential investors are, (1) widening defeats of the United Nations; (2) a new German drive on Libya; (3) doubts concerning Russia’s ability to hold when the Germans get ready for a full-dress attack; (4) the ocean transport situation with the United Nations, which has become more critical; and (5) Washington is again considering either more drastic rationing with price fixing or still higher taxes as a means of filling the ‘inflationary gap’ between increased public buying power and the diminishing supply of consumer goods.” (Virtually all of these concerns were realized and got worse.)
On the same day, discussing the slow price erosion of many groups of stocks, a leading stock market commentator said: “The market remains in the dark as to just what it has to discount. And as yet, signs are still lacking that the market has reached permanently solid ground for a sustained reversal.” Yet on April 28, 1942, in that gloomy environment, in the midst of a war we were losing, faced with excess profits taxes and wage and price controls, shortages of gasoline and rubber and other crucial materials, and with the virtual certainty in the minds of everyone that once the war was over we’d face a post-war depression in that environment, the market turned around.
Michael Antonelli: Something is happening somewhere in the World. The stock market is jittery, headlines seem particularly scary, and now you’re afraid and feel like you need to act. Let’s talk about what you should be doing right now:
- Control what you can control: Be super focused on this. Savings, spending, sticking to your plan, all of those are directly in your control.
- Talk to your advisor about your PLAN, not the market: Ask him or her how your plan is prepared for negative market conditions. It’s likely built to expect market corrections which A) happen all the time and B) inevitably end. The plan IS the lifeboat, don’t jump out of a lifeboat when you are in icy waters.
- Forget about market timing: There is no “good news” or “bad news” with respect to the stock market, it’s “better or worse”. Stocks don’t rally when peace is declared, they rally when things are getting “less worse”. Want to know when stocks bottomed in WW2? Right before the Battle of Midway. From then on, things slowly went in the Allies favor after years of going against them. That’s why market timing is so hard, you won’t know when the news is getting better in real time. Selling and buying back when “things calm down” is a surefire way to lose money.
- Don’t hedge the unhedgeable: there’s no reason to prepare your financial life for nuclear war, money will have no meaning. Don’t buy insurance or sell stocks before a meteor hits, you will have no one to collect it from.
- Remember the lessons of history: the worst-case scenario has a funny habit of not occurring. Humanity does not splinter in a crisis, it comes together. If the worst-case scenario does happen, see #4.
- Take a walk / watch less news: Don’t spend your entire day doom-scrolling Twitter or watching the news nonstop, you need a mental break, or it will crush you and have an effect on your health.
- Help where you can: If the World is experiencing a traumatic event, donate your time or treasure to helping those in need.
- Talk to someone: Are you trying to do this alone? Don’t. Friends, Family, an advisor, reach out and talk, humans crave companionship when they are afraid. If you are about to make a mistake with your money and have no one to turn to, give us a ring at Baird and we’ll help: http://www.locatebaird.com.
- Realize that you are living through normal history: If you could look 10, 15, 20 years into the future you would see crisis after crisis after crisis. History, it’s been said, is just one damn thing after another. Once this worry ends, another will replace it. Endure, and in enduring grow strong.
- Do Nothing: Humans are wired to act, it’s part of our DNA, but ask yourself, is doing nothing an option here? We often think that a problem can be solved with complexity when it can be easily solved with simplicity.
“My friend, I know you are worried, but I hope this quick list has calmed you down a bit. Remember, there will always be a reason to sell stocks or hold onto cash because you are afraid.
No one ever said this would be easy, but you need to remember that there is a price for everything. The price you pay for growing your wealth comes from fear, uncertainty, and doubt.”
Despite the wars, depressions, and sicknesses of the last 100 years, we somehow pulled through. The optimists triumphed. As we face similar challenges in the days and years ahead, the question is: will the optimists triumph yet again? I think so. In the long-run, it’s always a bad idea to bet against the power of the human spirit. So stay invested! Better times are on the way!
