Author: Tony Hixon, Hixon Zuercher
Covestor model: Focused Equity
It’s been said that a human is born with only two fears: the fear of falling and the fear of loud noises. Every other fear is acquired.
Those two fears in babies were very present when our son was born and our oldest daughter was five. She wanted to hold him so badly, but she didn’t quite know all the rules yet, and as she rocked him a little too much, he freaked out as he felt like he was falling on the downstroke of her rocking him. She was also quick to pick up on his fear of loud noises - she’d be pleasantly talking to him and all of the sudden shout “BOO!”, followed by him practically jumping out of his skin and crying. (Please don’t call child protective services - we quickly disciplined this out of her and it no longer happens.)
So, other fears are acquired, mainly by our brains projecting a possible outcome that may or may not happen. As our brains mature, we humans have the ability to project future outcomes that range from legitimate to downright silly. Case in point: I’m deathly afraid of spiders. Big ones, small ones, they all freak me out. I hate them and anyone who has a pet spider, in my opinion needs to have special counseling. So my brain projects that this tiny little thing can do some sort of egregious harm to me that more than likely will never happen.
So it goes in modern day markets. Fear and greed push markets up and down and our beloved financial media will always pound the side of fear. Striking fear in the minds of listeners drives viewership and hence, advertising dollars. So what are the current fears that are out there? Up, down, sideways…it’s all bad all the time. Here’s a few points from Brian Wesbury of First Trust Portfolios that I attempt to summarize below:
Oil – Between September 2011 and March 2012, oil prices rose about 20%. This generated fear that consumers will now have less to spend. But recently, as oil prices headed down through May and June, did the fear go away? Nope. Media touted that falling oil is a bad sign, signaling weak global demand. Be afraid…be very afraid.
Interest Rates – The 10-year Treasury yield has hovered around 1.5% and many now argue that the low rates signal economic problems and that the US is the new Japan. Then there are those who freak out about rising rates as they will hurt consumers, lead to less refinancing, and less business borrowing. No matter how you look at it, it’s bad.
Consumer Debt – It is currently trending up. This is supposedly bad because we Americans are on the verge of creating another panic of 2008. But if it were trending down, we’d hear all about the problem of Americans tightening their pocketbooks and spending less.
Consumer Savings – It is currently trending down. This is supposedly bad because we’re not saving enough for retirement and we’re all going to be screwed. But if it were trending up, well that’d be bad too because it takes money out of the economy. All bad, be afraid…do you sense a pattern here?
Foreclosures – Trending down. This is bad because now first time home-buyers can’t find any bargains. Unreal! But if it were trending up we’d never hear the end of it!
All bad, all the time. Be afraid, the sky is falling, be worried about everything. In the meantime, since the lows of March 2009, the market is up over 115%.
This is the reason why we are adamant about avoiding the noise, making carefully researched and educated decisions, and continuing to consistently protect and increase our clients’ wealth.
Are there legitimate fears out there that need to paid attention to? You bet. But there are also many compelling investment opportunities that being a perpetual pessimist will blind you to.