“The end is not nigh: people and markets adapt to even the worst circumstances.”
— David Tepper, billionaire hedge fund manager
I moderated and debated two doomsayers recently who are expecting a major bear market in the stock market “soon.” The panel debate took place only a few days after the Islamic State’s terrorist attack on Paris, the world’s #1 destination for tourists. It reconfirmed to everyone the barbarism and depravity of man.
Some pundits predicted a stock market crash like after 9/11 in 2001. Mike Tyson is famous for saying, “Everyone has a plan until they get punched in the mouth.” Well, it looks like the stock market can take a punch. The market rallied sharply on Monday. Even the French bourse was flat for the day. Gold as a safe haven moved up moderately in response, but not enough for us to get excited. Defense stocks are up, but oil continued its decline.
The bull market is still in place, even as several sectors have rotated from hot to cold (healthcare and energy stocks) or cold to hot (financial and defense stocks).
A whole series of bad news has threatened this market, including a stock market crash in China and now a major terrorist attack. “Bull markets climb a wall of worry.”
Commodity guru Dennis Gartman observes, “Markets that will not go down on bearish news are not bear markets.”
EuroPacific Capital’s Peter Schiff and commodity trader Ziad Abdelnour, the two bears on the panel, raised legitimate concerns about the future of America: too much debt, trillions of dollars in unfunded liabilities in Social Security and Medicare, a weak economic recovery and bubbles in the housing market and Treasury securities. Eventually, they said, it’s all going to come crashing down.
When I pointed out that these same arguments have been made over the past 50 years, and we’ve survived and prospered anyway, they refused to back down. “That’s history,” said Ziad, “the future will be different. America is in deep trouble.” He may well be right. He will be speaking at our Global Financial Summit in The Bahamas next March (see upcoming conference) and will make his case in more detail.
I think there are two main reasons why America has survived and postponed an economic Armageddon these many years. First, the bears underestimate the power and determination of the Federal Reserve to keep the system afloat. And second, American ingenuity has always kicked in to adapt and respond to crises. Since the financial crisis of 2008, banks and corporations have become more agile in cutting costs to the bone, and they have stronger balance sheets as a result. Never underestimate American ingenuity.