What do the gloom crew most get wrong?
You know them when you hear them. “The latest European bail-out isn’t enough. Or it doesn’t deal with structural problems. The US is just like Greece: we’re in hock up to our ears. And what about moral hazard: aren’t you just rewarding budget indiscipline?
I love questions like these. They serve mainly to illustrate the biases of the questioner. For example, what is enough? The proposed EU rescue fund is two-and-a-half times the entire Greek debt burden. But “enough” is a subjective term,. And the US isn’t Greece. We’ve never defaulted; Greece has done so dozens of times since independence.
These kinds of questions aren’t fact-based and have no satisfactory answers. They provide a context of worry and fear for the markets. I like them because they ignore the fundaments: we’re in a global recovery. More stuff is being produced and more consumers are buying it. Global corporations have healthy balance sheets and expanding margins, even as modest growth ensues.
But might a $400 billion economy derail the $14 trillion Euro-zone through contagion and fear of risk? It’s possible. What the gloom crew most get wrong though is the power of human innovation to solve problems and enhance lives. When your only tool is a hammer, you view the world as a nail. Most of them never ran an operating business.
Stocks climb a wall of worry. The gloom-sters are just setting us up for a bigger climb.
Douglas R. Tengdin, CFA
Chief Investment Officer
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