As I reviewed the sea of red ink yesterday on the screens, one can get a sense of just how emotionally the masses are interpretting the data streaming through the headlines.
We have now become engulfed in fear at levels not seen since the Great Recession.
I will repeat my largest fear:
It is not that oil is now streaking toward $20.
It is not that gasoline costs are now below $2 in many areas of the country.
It is not that massive amounts of money previously being spent on energy can now be spent for more productive items.
It is not that many industries who have crude oil as a cost input – around the globe – are seeing massive savings which will eventually trickle down to earnings.
It is none of these things.
For me it is all about the emotional psyche of the consumer. Recall, we are all born with the same basic wiring. If we read 17 times an hour that recession is near, the mass will begin to act differently. We will act as though risk is coming. We will begin to pull in our horns as confidence drops.
As confidence drops, momentum fails. As momentum fails, forward movement slows. Even if moving slow – moving slower would only impede the process further.
Mind you, this would all be based on fear – based on the fear of some possible event. Our fears can indeed cause our emotions and actions to change – whether the fear is warranted or not.
If you had told me years ago, when the world was awash in fear that oil was $148 a barrel, that instead, in the next cycle, the same world would be terrified of $27 oil, I would have thought you had lost your mind.
Yet We Stand Here
Trembling as too many watch too many ticks of red ink.
It started as crude oil broke down from $120. When it broke below $100, the news grabbed hold of a China story that had been slowing for years.
We have not changed our stance on China a bit since 2009. It is growing somewhere between 2.50 and 5.00 percent – tops. It will be fine but it will not rule the world anytime soon.
And to think – right before the dollar started rallying, we were all convinced the Yuan would become the world’s currency.
Especially when you consider we are now also afraid of the strong dollar.
Be that as it may, then oil and China were tied at the hip – not that any of the data supports this aspect of fear since China is really using more oil than before.
However, once linked in the mind of the masses, the Black Swan hunters and bear fans have all been able to get this story rolling down the hill.
Remember, it is ALWAYS easier to scare someone than it is to make them feel confident. It is always easy to “sell” a dark future with tremendous problems than it is to accept that we have always had problems – and our history is built by finding ways to make them opportunities.
At some point it will become imperative that we get a few things steady in our head. We need to recall all of the other things we were told would be fact….and I take the initiative here to name just a few:
- We were told the PIIGS would take us all down
- We were told that Greece going into default was really the end
- We were told QE was inflationary
- We were told the Dollar would be destroyed – now we fear its strength
- We were told oil would reach $250 a barrel – now we fear its weakness
- We were told too many houses exist for the next 10 years – and now there aren’t enough
- We were told gold, housing, energy, commodities – and now sub-2 percent bonds was all we needed
- We were told to make sure we owned emerging markets as they were the future – and they weren’t
I could go on and on and on – but here is the point: The very same corral from which all that false projecting came from is the same block of noise-makers the masses are listening to now.
Will they be any more correct this time?
Why are we so quick to assume they will be?
Listen it is very, very simple to make you afraid. Indeed, were I the type, I could terrify you in this very note. I could provide stats which tell you that we are doomed. I could provide charts which would make even the strongest start digging bomb shelters.
Does That Matter?
Well, it should not for long-term investors. Why?
Because I could have provided you those same scary charts and stats from the day I arrived in this business back in August of 1982 – when the DOW was 3 digits ong instead of 5.
The world has been on an imminent pathway towards its destruction since I sat at my first trade desk.
Now I recognize ahead of time that this all brings home one key fact we all must remember. It is the dirty little secret we lock away deep in our minds. It is the thing that makes us all equal and reliant upon each other:
Tomorrow is not promised or known – by anyone, for anyone.
We can be swallowed up by the universe at any moment. I may stop typing in the next line – not by choice.
There is always a new reason. There is always a new, bigger, badder monster. It will always be a more expensive peril and it will always take longer to fix or get ourselves out of it.
I promise you that if we could all wake up tomorrow with God Himself standing in front of us holding a tablet stating that China would never again grow at less than 8% annually and crude oil would always stay above $85 a barrel, in less than 10 days we would have an enormous new list of problems and perils facing the markets.
Emotions are The Problem
Be assured – we are the problem – our emotions are the problem – our reactions are the problem – not China, not oil, not the strong dollar.
When those problems turn and their cycles move the other way (and they will) – we will be told to fear the other side of the coin as well.
So I remind you – as I must remind myself almost every minute at times like this, that every single thing we are afraid of has happened in the last 30 years or so – while the market has risen over 16 times.
It is all too easy to think “it’s never been this bad…” These types of price convulsions cause all to assume that in the recess of our minds….and it is easy to be absorbed by the endless wash of the headlines.
This is why it is a sign of how tough it has been to sit idle and wait for these convulsions to unfold.
But wait we must – standing against the storm is what the successful investor finds they do most of the time when looking back on a lifetime of decisions.
This window of panic is no different from the others.
It is ugly, painful to watch in the short-term and valuable in the long-run.