There will be another market crisis at a point in the future, we can be sure of that, perhaps one in the Industrial or Financial sector. The pouting pundits of pessimism are already calling the 10th recession out of the last 2 that actually happened. Media reports have us lurching from crisis to crisis, one where each and every crisis is going to have a negative impact and break the back of the global economy, yet global growth plods forward. People talk about how it feels like a recession, yet personal incomes have risen 4.2% in the last year and spending is up 3.2%.
There is a constant clamor for bigger government, more regulation, additional oversight, incremental capital by the punditry who show up on our media outlets and declare that this ‘event’ is the real deal and will now take the market down. (I often wonder if anyone tracks their records and how right or wrong they have been).
This is the world we are navigating, one that delivers endless bad news yet people’s lives keep getting better.
Let me take an example utilized by M.Ridley in his book ‘Evolution of Things’ and see if you agree with the conclusions of it. We tend to have 6 basic needs- Food, Clothing, Shelter, Healthcare, Education and Transportation. Table below shows how spending has evolved on 4 of them over the years.
The first submission to you based on data above is that our lives have gotten better as we are spending less on basic items (food & clothing) and are able to afford more healthcare, entertainment etc.
The second submission to you is that the reduction in price of food & clothing was driven by almost free markets. Companies in these sectors are run by private enterprise which certainly had and have issues, but overall have delivered better quality products at lower and lower prices. Contrast this to health & education which are largely public or governmental institutions and one gets a sense they have been slower to reform, innovate and be transparent. For example, despite having massive advances in healthcare, costs keep rising. (Why is one unable to compare hospital services and see ratings across institutions!!)
It is the free market where the entrepreneur is free to tinker, experiment and innovate which has driven the Western nations and now large parts of Asia to prosperity. People ask where the good news to drive the bull forward will come from and I submit to them that good news creeps up on us, it is a bottoms up process of the many exerting themselves, instead of a top down approach where few decide what works for the economy. As an example, no institution gave us the i-economy, instead it crept up on us and disrupted the established companies while adding billions in net value.
That said, we at NPI are far from perma-bulls, as growth is never a straight line up. We constantly watch for top down actions (for e.g. regulatory, political, central banker driven) which have the potential to derail bottom-up creation and if we see one such action of significant magnitude ($1 Trillion+), its likely we will call the Bear on it. Till then, to call a Bear at every twist and turn of the market is feckless and will probably do more harm to your long term goals.
Some risks that we are watching closely which the market does not talk about are, possibility of an indictment of a leading political figure, FASB & Basel Accords pronouncements, ITU (International Telecommunications Union) activities, etc.
If you have the Risk appetite, stay with equities especially Mega Cap Growthy stocks excluding Energy and Commodities (more on those in our subsequent blogs).
*Past performance is no guarantee of future results. A risk of loss is involved with investments in capital markets. Please consider investment actions in light of your goals, objectives, cash flow needs, time horizon and other lasting factors.