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November 13, 2023 at 02:22 PM
In dealing with clients over the years, you may have noticed that some are afflicted with a constellation of symptoms known as infectious doomsday syndrome (IDS).
Diagnostic symptoms of this disorder — acute economic anxiety, financial neurosis and profound stock market pessimism — stem from overexposure to ubiquitous pessimistic financial forecasts. Victims of this relentless doomsaying are consumed by a sense of futility regarding asset growth, and request that portfolios be overly focused on asset protection. More acute cases are ready for the proverbial mattress.
A common variety of IDS is Granthamnoia, contracted from the doleful economic forecasts of Jeremy Grantham, an investment manager who habitually calls stock market crashes and recessions that usually don’t come to pass. Despite his record, he continues to forecast doom with astonishing certainty.
Furrowed Brow
With his furrowed brow and grim facial expression, Grantham characteristically opines, when the market is doing fine, that doom is at hand. After correctly predicting twice that a market bubble would soon pop — in 2000 and 2008 — he has since seen more bubbles than a scuba diver on LSD. His abysmal record over the past 15 years makes him a walking contrarian indicator for American markets (despite U.S. global dominance over the last few decades, he vehemently warns against U.S. investment).
In 2009, Grantham predicted seven lean years for the economy, but in the summer of 2011, he said he’d been too optimistic and that it would be a miracle if annual economic growth reached 2%. He warned clients of GMO, the Boston-based firm where he is chief investment strategist, not to get accustomed to the new bull market and to think “much more conservatively.” In April 2018, he warned of a bubble in the making, and in October 2020, that a bubble would pop in weeks or months.
True to form, in media interviews in the past six weeks or so, Grantham, a Commander of the Order of the British Empire (a rank just below knighthood), has labeled the market’s recovery this year a “head fake” presaging a near-term recession and a stock market collapse.
Dentitus
Another highly infectious strain of IDS is Dentitus, named after Harry S. Dent Jr., a principal of HS Dent Investment Management, a Tampa-based investment firm, and a financial publishing concern.
While the forecaster has made some correct predictions, including Japan’s 1989 bubble burst and recession, the dotcom crash and the populist surge that thrust Donald Trump into the presidency, many of Dent’s prognostications have not panned out.
Dent was an optimist before he was a pessimist. In 1998, he published a book predicting great prosperity for 2000-2010 (“Roaring 2000s: Building Wealth in the Greatest Boom in History”) — on the cusp of the market’s Lost Decade, a period marked by two recessions.
When optimism didn’t work out so well, Dent published another book, “The Great Depression Ahead,” in January 2009, three months before the market bottomed. In December 2016, when the Dow stood at 20,000, he predicted a rapid 17,000-point decline.
In November 2017, in his book “Zero Hour,” Dent predicted a major market crash during the presidential term of Donald Trump and in March 2021, the biggest market decline ever by June of that year. On Aug. 29, 2022, he warned of an 86% drop in the Dow by the end of 2023. Undiscouraged by market gains this year, Dent in April predicted the crash of a lifetime by mid-June. He now says the crash will come in 2024.
Some victims of Granthamnoia have also developed Dentitus, resulting in acute IDS cases.
How can advisors treat IDS? One regimen that’s proven highly effective is to communicate to clients the fundamental problem with such prognostications, even if true: that they really don’t matter because long-term market averages will deliver the goods to those who stay invested instead of overreacting and liquidating holdings.
