I have always refrained from saying what legendary investor Sir John Templeton considered the four most dangerous words in investing: This time is different.”
After months of talking to and reading the words of investment experts trying to find the right way to describe and forecast the U.S. economy and stock market for 2023, I’m not going to go out on a limb and say this time is different, but I am coming close: this time feels different.
I’ve been investing since I was a teenager. By nature, I’m an optimist. I default naturally and easily to the positive; in my life, the good always gets the benefit of the doubt.
As I hear and read experts reaching back for market and economy parallels from the past, my experience over the past several decades has shown that every downturn, recession or crash ultimately proved to be a buying opportunity. As a result, believing the good in long-term forecasts has always been easy.
That’s not the case right now. If you want to make me laugh these days, say something particularly optimistic about the market. Tell me the Federal Reserve will stick the landing, or that recession isn’t coming, and I’ll try to stifle a snort.
Meanwhile, say something negative and whatever you say sounds plausible, reasonable, or just about right, so long as you’re not shouting or going all Chicken Little about a falling sky.
For example, it’s easy for me to discount my December interview with author Harry Dent, who continued a long-held call for the U.S. market’s decline to be 85% or more from peak to trough. Dent is loud and brash and seems to have called for 10 of the market’s last three downturns.
But I’m struggling to get in line with the optimistic side of a recent chat with Rob Arnott. Arnott, who some people have labeled as a permabear, is the top dog at investment company Research Affiliates and said in an interview on my podcast, Money Life with Chuck Jaffe, that he thinks the worst of the bear market is behind us even as a U.S. recession lies ahead.
You don’t need a bear market to have a recession (or vice-versa), but there’s not much to get excited about in stocks when you know the economy will struggle and expect the struggles to continue longer than most.
It may be confirmation bias of my own feelings, but when Roger Aliaga-Diaz, Americas chief economist and head of global portfolio construction at mutual-fund giant The Vanguard Group, said on the show that the Fed may not hit its inflation target until 2025, it felt more accurate than the many forecasts suggesting we’ll be out of the woods before the third quarter of this year.
Layer onto it the take of Patrick Luce, economist at ITR Economics, who said there’s “no way we avoid a hard landing” late this year into 2024. Luce and his colleagues are perhaps best known for dire predictions calling for another Great Depression coming in the 2030s. That bold forecast is easy to discount from a big talker like Dent, it’s harder to ignore in Luce’s flat, matter-of-fact, demographics-rooted explanation.
None of that means that it’s different this time.
Yet dealing with issues that, in some cases, haven’t surfaced in decades and using the classic playbook for handling them means we have memories of how things can play out. And, inevitably, every downturn, no matter the cause, was met by a recovery.
Ultimately, that’s what I expect this time, though I worry the upside will be tepid and unsatisfying. I’ve always told investors to look inward when the market gets hairy, to figure out if the changes they’re concerned with are specific to the market, the individual investment or to themselves.
What I’m sensing in myself — and hearing from readers and listeners in discussions on this — is that the difference is about personal circumstances. It’s just that everyone can take what’s happening right now personally.
Your feelings about the economy, inflation and interest rates are shaped by what you see at the gas pump, in the grocery store and on your credit-card bills or balance-transfer offers. Notice how you feel when you check the estimated market value of your home or talk with your friends about money and finances.
Throw in a 20% decline in the stock market last year, plus headlines about job layoffs and concerns about the impact of a likely recession, and there’s virtually no way to hold onto the hope that you are somehow above the fray.
Roll with the changes
For people in or approaching retirement — and I started including myself in that group when I turned 60 last year — there is additional concern about sequence-of-return and longevity risk, the real possibility that the stock market could tank as you enter retirement, dramatically lowering the earnings potential of your nest egg while increasing the chances that you outlive your money.
Aging — combined with current conditions — makes that fear more palpable than ever.
Younger generations, meanwhile, are new to the inflation pinch that the children of the 1960s and ’70s remember their parents grousing about over the kitchen table. Inflation is a problem they now must figure out and deal with.
So yes, this time feels different, for a majority of us. Not sell-everything/scrap-the-plan/build-a-bomb-shelter different, but “Don’t just sit there, do something” different.
For the younger set, this puts a hyper-focus on expenses, not just at the gas pump but with investments. Buy, hold, trade and sell efficiently, and find a way to value every dollar.
From a portfolio standpoint, diversify; invest in the market areas you’ve been ignoring because spreading around your money and risk is a form of insurance against times like these.
Older investors, meanwhile, should focus on generating and protecting income, securing what they can bring in no matter the market and economic conditions.
No, those strategies aren’t radical, but they are moves that reflexively feel “different,” because they’re a response that is better at a time when almost nothing feels good.