This is normally the time of year when most would be reviewing the positives, discussing gains and looking forward to the New Year as the holiday spirits engulf our remaining days of 2015.
Not this year. No, this year we live in a world of opposites. We only focus on the bad and ignore – or worse, argue against – the good.
Let’s Step Back
Years ago, we stated here that China would not be the ruler of the economic planet for several reasons. The primary element which has only recently been addressed – was demography.
The last few years have taught us just that – China is struggling under a burden it cannot replace or run from. Sure, it will be OK. The next generation may learn from these mistakes. The fact that s lower growth in China has brought down the cost of all raw materials should be a good thing for many parts of the world.
As you can see from the media – it is deemed a terrible thing instead.
Last year we speculated that oil would begin a shift in perception – and value. Ultimately we went on to suggest that somewhere in our kids lifetimes we would find them wondering aloud, “You guys actually used that oil stuff for your cars?”
With the changes in China, the finding of oil every where we looked here and the massive shift just getting underway with Generation Y coming of age – destiny was set.
Who would have ever thought that oil being less than half the cost seen just a year ago would somehow be described as a terrible thing.
It IS Terrible For Some
Yes, it IS terrible if you produce the stuff. It IS terrible if you are forced to adjust your business model. Yes, it IS terrible if you cannot adjust before your business model fails. Yes, it IS always terrible if some investors strive for things which may fall into the “too good to be true model” and stretch for dividends and interest rates of 8, 9, 10 or more percent in a word of 2-3% real yields.
So – YES, let’s be clear – for some, cheap oil is a bad thing.
Funds that stretched too far in high yield debt will very likely suffer significant losses.
Be assured however that on the other side of that trade, as they liquidate under pressure, someone else will buy debt very cheap, take over companies at pennies on the dollar and resell – later, after restructuring.
They will sell to a public wanting the next new thing after making sure their new business model fits with “cheap oil” and can operate profitably.
That all properly noted, cheaper oil is a massive, significant benefit to many parts of the world, many consumers in the world and benefits far more sectors in the economy than are harmed by it.
And the world will keep on ticking.
And We Are Left With???
As the last days of 2015 come to a close, we should all be thankful for much.
I wish you and yours the very best of the Holidays and pray that the stage is set for a rewarding and blessed 2016 and beyond.
Given the seemingly gray pall over the horizon these days (it is not but it seems that way to many), I remain convinced that we have become addicted to fear.
We have unfortunately entered a stage where we seem to need something to be afraid of for normal functioning. If we cannot find it, I get a sense from many that they feel agitated – almost like a withdrawal, as their mind stays busy in the background wondering what could/will go wrong next?
The sensation seems to be, “Gosh, there must be something that is about to happen…no?” That is understandable given the media process we all face these days.
Better Days Ahead
Shifts are unfolding as these winds change. Politics will be front and center in 2016.
These things take time. But, as we ponder the end of 2015, I like to ask, “what didn’t happen?”
In essence, given all the terrible things we are told to fear, I suggest our better focus for planning should be on what did not happen.
After all, there are terrible things running amok all around us. We might want to ponder why some things did not happen?
Why didn’t the market actually get crushed across the board? An entire sector was decimated. It’s earnings plunged over 80%. Surely something other than basically flat would have been the result?
Why did earnings over all stay at record highs as the energy component plunged? Sure we saw slowing paces of growth in many areas – but we still beat expectations – every quarter.
Why did cash levels expand further into record high territory? Why did debt costs fall to levels not seen since the 1970’s as a percentage of income?
Why did we still set new highs in personal income, household net worth (per capita too) and money market/bank balances?
And why – after a market that admittedly could not get out of its own way for the last 16 months – but has gone nowhere – are we still so terrified?
Look how far away from the highs this bullish sentiment chart shows us.
Or how about the outright bearish feelings below?
We have been at this general level since 20 10 – nearly 8,000 points ago.
I cannot admit to you that I know the answers but remember my comment on being addicted to fear. If we do not break out of this mental funk, we will be reviewing this same set of charts together 10 years from now – at a DOW of say, over 40,000 – or more?
Don’t Want to be a Broken Record
Rest assured, I hate the idea that this has been a tough year. I hate the idea that sometimes you hit a year where a style, an approach seems out of favor and “not working”. So often we watch over time as investors sell what is not working (on the lows) and buy what is working (on the highs), leading to bad results over time.
History suggests these things adjust in waves. A poor year or two is followed by a “catch up”. Averages work over time because of their compounding effect. Lackluster years lead to better ones. A patch of good years is followed by a digestive period. Some of the very best have had a very tough 18 months.
But here is the key…with the China mess, the terrorism mess, the Middle East mess, the Greece mess, the Puerto Rico mess, the South American mess, the high yield mess and the oil mess…we should all wonder why we are basically flat in the overall market.
In time, I would suggest we will find it is because great things are ahead. Break-throughs are ahead. A better economy is ahead. New opportunity is ahead.
In time, we will look back on these past 18 months of high frustration and likely wish we had used the values wisely, we had remained patient and disciplined – and we had kept our eyes steadily on the long-term horizon….even when it admittedly was very, very tough to do so.