Hi Reader,
Kyla Scanlon posted an excellent video on Doomerism, which is essentially an extreme form of pessimism, or a predisposition to catastrophizing as a threat response. This is more than a penchant for claiming the world is going to end. This is predicting a scenario in which you will be comfortable, if not thrive, because YOU knew it was coming, because OF COURSE it was coming, and you were right and maybe you’re more prepared than the next person who was foolish to see the glass as half full when you saw the glass was actually tied to an atomic bomb dropped by an invading alien race.
There’s a whole laundry list of reasons why doomerism exists, including but not limited to the incredible amount of noisy negativity available at our every beck and call via TV, radio, social media, and live in-person community feedback loops. It’s always existed, this fascination with catastrophe. It’s the impetus behind zombie-themed TV shows, Earth-destroying blockbusters, and Qanon conspiracy theories. I mean, it’s in the Bible, people. The end of the world has always been nigh. You need not look hard to find it.
It’s easy to find it in finance. Famed investor Jeremy Grantham predicts a stock market crash almost annually. He was right twice, so people believe him. Fear monger Marc Faber runs the Gloom, Boom, and Doom report that pumps out almost weekly confirmation bias content for doomers to consume/bury themselves in. It’s a profitable business.
Politics frequently interfere with our investment strategies, as our political leanings encourage us to think that if the wrong guy wins the market will fall apart. I remember this seeming to come to fruition as I watched the S&P 500 futures nosedive the night of the 2016 election. The index was down 5% in premarket trading, triggering a circuit breaker and certain panic. It opened flat that morning and finished positive, up over 1% at the end of the day.
The stock market was positive over the course of Trump’s presidency. It was positive under Obama, and it’s positive under Biden. And yet during each of these presidencies, I fielded calls from clients convinced the current or future guy sitting in the oval office was going to crash the stock market. “What do we do to prepare?” they’d ask. “Should we go to cash just in case?” The answer was always no. It probably always will be.
Debt defaults and government shutdowns are reoccurring scaries in the finance world (1990, 1995, 2013, 2018), along with devaluing currencies, expanding government debt, and now the potential to fail to make payments on that debt. We have politicians squabbling over the national debt ceiling limit, like children arguing over the pieces on a monopoly board. “What the heck is a debt ceiling?” you ask. Essentially, it’s like the limit on your credit card, and that credit card is your only form of payment. There isn’t enough money coming in to cover your wants and needs, so you rely on credit to take care of everything and everyone. If the credit limit isn’t increased, you won’t be able to pay the bills.
On one hand, you could argue that you NEED to pay the bills. But on the other hand, it could be argued that maybe you should just stop spending so much damn money. And that, in a nutshell, is the oversimplified explanation of this Democrat/Republican standoff.
The headlines around a looming debt default have some of our clients again asking what they should do to prepare. Our clients aren’t doomers, of course. But Doomerism is contagious, and it’s easy to pick up a little bit of the virus in our travels. They need some antivirals to fight off the fever, so they call us.
The answer always comes down to reassurance. Yes, the government might default. I personally don’t think it will, but it might. There are no guarantees. There will probably be some volatility in the stock market as the threat of that default grows and fades. There will almost certainly be volatility if that default comes to pass. And what should you do about all of this? Nothing. And here’s why.
The stock market is America. America is global. If you think the end of America is nigh, then cashing out your investments and putting everything into U.S. dollars doesn’t make a whole lot of sense, does it? You could sell your investments, go to cash, transfer those U.S. dollars into other currencies, and hope an American meltdown isn’t as global as it’s always proven to be. You could go buy gold and hope that trading in gold in an apocalypse will save you from the bandits and pay for your milk and eggs, but you’re honestly better off just owning a farm, at least until the bandits come.
The point here is that this is a fruitless exercise. The alternative to all of this is the assumption that either a.) the debt ceiling will be figured out or b.) it won’t be figured out, but it will be shortly thereafter, and things might be crazy for a while but then, ultimately, you know… ‘Merica.
“Never bet against America,” says Warren Buffet. The guy is 92 years old, sustains himself on McDonald’s and Coca-Cola, and is worth approximately $114 Billion. But okay, doomer, you’re right – those dollars aren’t worth anything in the zombie apocalypse. And if this catastrophe does indeed come to pass, your door prize is being right about the end of everything. Smiles all around.
In truth, the debt ceiling is a serious issue and would have immediate ramifications that would mean people living off pensions and relying on public services would be put at risk. If you’re wondering what to do to prepare, it’s likely the best thing you can do is have a small amount of emergency reserves ready to help you weather the storm. But if you’re wondering what you should do with your diversified investment portfolio designed for long-term financial success, the answer is nothing. Ride the waves. Heck, take advantage of the opportunities.
Because if there’s a long-term issue here, then the need for your long-term portfolio doesn’t exist.
Stay Positive!
CoFi
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.
