The Appeal of Doom and Gloom

In a slow news cycle, like we’re in now, human interest stories dominate, stuff like the the clock hoax, the Budapest refugee ‘crisis’, and so on, all overblown to turn outrage and curiosity into ad dollars. That’s why the news is a waste of time…little actionable value can be gleaned from it. The same goes for doom and gloom – predictions of America’s decline and demise – that have become commonplace on blogs and YouTube channels, and, like the news, is at the very least useless and, at worst, perilous to your financial health.

There won’t be a collapse – just a continuation and amplification of existing trends. I’ve been blogging on and off since 2008 or so, have read pretty much every economics opinion and perspective out there, and can’t recall a single instance of a doom & gloom prediction coming true.

The financial problem of 2008 could have been the start of something much worse, and many predicted it would, but thanks to effective policy, the propensity of the consumers to keep consuming and innovators to keep innovating, things quickly recovered.

Peter Schiff was completely wrong in predicting a surge in emerging markets, gold, and foreign currencies, as well as a decline the US dollar, hyper inflation, and a bear market in equities; the exact opposite happened. Inflation as measured by the CPI is still low, the dollar is surging, emerging markets & foreign currencies have been poor investments. Anyone who took Schiff’s ‘advice’ lost their shirt in one of the strongest bull markets ever. You not only underperformed the S&P 500 – you underperformed cash.

The same for Zer0hedge, which has been on the wrong side of things since 2009 and yet is still immensely popular as a ‘go to’ source for market ‘rumors’ that somehow retain their exclusivity after being viewed millions of times. Other times, it’s stating the obvious…’wow, computers are used in trading…who knew’.

And Karl Denninger, another whinny doom and gloom pundit who has gotten everything wrong, yet he is still considered an ‘authority’ on markets and the economy.

Why do people predict gloom? Maybe it’s trendy these days to be negative about the economy, in contrast to the the 80’s and 90’s when optimism seemed to prevail. You can sell more newsletter subscriptions, get more ad revenue if you scare people. Possibly, and understandably so, recent economic trends, wealth inequity, and job anxiety, as well as the election of Obama, have made many people negative about the economy and the fate of America, but I take an optimistic approach in that if the economy and stock market is thriving in spite of Obama, as a testament to the ingenuity and resiliency of the best and the brightest within a free market, with better leadership and better policy the economy can operate at its full potential.

Doom and doom cuts both ways; welfare liberals say we’re doomed because of wealth inequality; some on the right says we’re doomed because of debt. Both are wrong, although being optimistic about America’s debt situation isn’t an invitation to careless spending.

To the left, especially, crisis is seen as a form of ‘retribution’, the resetting of the system to a more egalitarian state, against the wealthy and powerful elite. And for some on the right, crisis is a way for society to return to its ‘roots’, to a time before modernity made things worse by disrupting the ‘social order’.

How about a third option: Taking the good with the bad, playing the cards dealt without waiting or hoping for fate to reshuffle the deck and deal you a better hand.

But being a contrarian, by being long stocks while everoyne else is negative, pays nicely. They say the market climbs a wall of worry, and this bull market, the most hated ever, is up 200% from the March 2009 lows . You look at the late 90’s when everyone was optimistic, which ended in a 50% decline in the S&P 500 between 2000-2003, so perhaps the most enduring bull markets are ones where few are optimistic and participating. Everyone is looking for excuses for things to get worse – but GDP, consumer spending, and profits & earnings keeps humming along, quarter after quarter, year after year.

Overall, bet against America, its stock market, and its economy is a bet against its best and brightest that make America the economic and intellectual superpower it is today and probably always will be. With the exception of the 30’s and in 2008, such a bet would have been a big loser. We’re talking two successes out of a sample size of a hundred years. America may have social decline, and there are other problems, but things that can be measured – stuff like economic data and stock prices – are doing well, but if, unforeseeably, things go pot and don’t recover, maybe I’ll dust off the Karl Denninger and Zero Hedge articles as maybe there was some value amid the cacophony of fear peddling, and while a broken clock is right at least some of the the time, these pundits are never right.

Related: Ignore the Doom and Gloom Narratives