As a youngster growing up in Montana, I loved watching the comedy variety show “Hee Haw.” Although not a big fan of country music, I was nonetheless smitten by the show’s corny humor, Roy Clark’s amazing guitar playing and the clever word play of Archie Campbell (see picture). He was famous for his “That’s good, no that’s bad” routine and telling children’s fairy tales using spoonerisms (“Cinderella” became “Rindercella” who “slopped her dripper” – dropped her slipper). Good stuff. The show enjoyed a long run (1969-1992), and probably had a surprisingly broad viewer base.
One of the reoccurring skits was the “Gloom Despair” one, where four of the cast members would recite a four-line poem bemoaning some extraordinary misfortune they were experiencing. At the end of the poem, they would sing together these lyrics:
Gloom, despair, and agony on me
Deep, dark depression, excessive misery
If it weren’t for bad luck, I’d have no luck at all
Gloom, despair, and agony on me
As a parent, I sometimes found myself singing these words to a child whose nose was out of joint due to some perceived mistreatment by the world. As one might expect, these lines did little to alter my child’s morosity.
As an investment advisor, I am tempted to sing this song whenever the negativity about the economy, the markets and politics becomes ubiquitous. Now is one of those times. I am not sure the reason for this massive dose of pessimism – perhaps it’s the political adds promising some sort of Armageddon if we don’t elect the candidate who endorsed the ad; maybe it’s the fear of troubles in Europe escalating, maybe it’s all the talk of the dangers of the “fiscal cliff” looming in the not-too-distant future. Regardless of the cause, this gloomy mood is out there, and frankly it baffles me.
Usually these peaks in pessimism occur when the stock market is struggling. That is not the case this year. Year to date, the S&P 500 is up 12%, the Russell 2000 is up almost 10% and even the Dow Jones Industrial Average is up over 7%. So, it is unlikely that this gloomy mood is being caused by a weak stock market. Frankly, I don’t know what the cause is, but I find the manifestations of this negativity quite interesting.
Some people I speak with have become so negative that they doubt the official data reported by the government and other sources.
“I can’t believe that corporate earnings are growing.” Yep, they are. S&P 500 earnings for 2012 will be another record year. Corporate earnings have grown steadily since 2009. All indications suggest growth in 2013 as well. (And yes, this is occurring while Europe is in recession and China is slowing down…)
Here are some S&P 500 earnings per share numbers:
2012 (est) $105.64
2013 (est) $119.35
“The economy is so weak.” Actually, the U.S. economy has posted quarterly growth every quarter since the third quarter of 2009. We are more than three years into the current economic recovery. That’s the fact.
“All sorts of bad things could happen.” This is my favorite. At any point in time, one could conjure up an infinite number of negative scenarios. Most of the time, none of the really bad ones ever happen. “Black Swan” events, like the 2008 global financial crisis are called “Black Swan” exactly because they are rare. To expect a flock of black swan landing in one’s pond any minute now is to miss the whole point of the “Black Swan” idea.
In my experience, peaks in pessimism are usually good times to buy stocks. The market looks like it’s trying to figure out what to do in the short run, but I feel pretty good about the future. The U.S. Presidential election (when it’s over) will remove some uncertainty about government actions and policies. The fiscal cliff deadlines will soon pass and we will have that uncertainty removed as well. The stock market looks undervalued by a number of metrics and I continue to find many, many attractively valued stocks I want to own.
And as an antidote to the gloom I feel surrounding me, I will smile when I buy them =)