This blog post originally appeared on RealMoney Silver on July 5 at 7:28 a.m. EDT.
The past repeats itself almost constantly, as witness the multitude of Tuesdays that are virtually indistinguishable from the multitude of preceding Mondays. Disruptive, let alone epochal, change is necessarily rare, and the avant-garde thinker is prone to see shadows or to shoot at ghosts. Extensive experience has taught me that there are many ways to be wrong about markets; through shortsighted ness, of course, but also through excessive farsightedness; through pride, ignorance, bad luck, impatience, imagination or sophistry. My signature variation of this latter pitfall is to apply "the lessons of financial history." -- Jim Grant, Minding Mister Market: Ten Years on Wall Street with Grant's Interest Rate ObserverOver the weekend, I recalled the recent market swings (up and down) since January 2011. There was the market swoon coincident with the Japanese earthquake, tsunami and nuclear accident and, most recently, a remarkably similar descent in share prices as the sovereign debt contagion swept more broadly throughout the eurozone. What we have learned, with the benefit of hindsight, is that both declines were an opportunity to buy. During the last decade, I have written critically about the legions of permabulls, but, with the exception of some brief critiques of Nouriel Roubini, i have laid off the permabears. It can be argued, however, that my commentary on the capital markets and on the world's economies has been observed through the eyes of someone seeing only the accidents on the highway rather than the beautiful landscape on the road. In that sense, I have been unfair and biased and cursed by negativity. Over the years, I have been a voice of concern (cyclical and secular), and, at times, I have been embraced by some in the media as a standard-bearer of the pessimistic view. In all honesty, though, over time and even in a relatively flat decade for stock prices, optimism, not pessimism, on balance has paid off. In reality, shouldn't Jim Grant's words (at the beginning of today's opening missive) and wisdom apply critically to both cynics and cheerleaders? Indeed, the facts are there in support of stock market optimism triumphing over pessimism:
- Statistically, stocks over the long run tend to rise (on average) year over year.
- The mass of the people has the weight of the money on its side, and the crowd is innately positive on the future and invests for the future.
- Corporations are generally managed by capable executives who want to succeed, not fail. Rising profits, expanding dividends and opportunistic buybacks are general objectives of their management policies.
- Demographic growth (population increases and household formation) provide a gravitational pull toward domestic economic and corporate profit growth.
- And governments, as stupid as they can be -- and they were awfully stupid in the last cycle -- will do nearly everything in their power (policy-wise) to advance economic growth, even in the face of economic tragedy or near-economic-Armageddon.