Dog Think

The Year of the Dog starts this week. You can imagine what that means to this blog, where canines are revered, like the cows of India, as symbols of goodness. Everything the comment section is not. Apparently not a single dog alive worried about the S&P last week, mocked another dog because his humans rent, or considered whether a vehicle was owned or leased before he threw up in it.

Dogs live for the moment, since tomorrow’s an abstract thought. They must trust others and constantly adapt. People suck at both trusting and adapting, believing they can (and must) control the future. That lands them in an emotional morass, as the market mayhem of the last few days has shown. So much angst over things nobody can control. So much wasted fear and pointless attempts to answer the question: ‘but what does it mean?’ A dog would never ask that. It means what it means, and there could be a liver treat involved. What else matters?

This dog-think suggests that maybe you should focus on those things that you can control. Like scratching or sniffing (or ‘working’, as we call it). If beagles had portfolios, in other words, they would be balanced and diversified – just set and forget.

As you may know, the Dow went up Friday and kept rising Monday by another 400 points. Bond yields that had swollen like an offended gland returned to a more-normal size. After shedding almost 10%, equities stabilized and buyers flooded in. It was the antithesis of what we’d heard last week from nutbars and doomers like Dennis Gartman and Jim Rogers. This is “the beginning of what could still be a substantive bear market in stocks,” said Twiddledum. “I fear this will be the worst bear in thirty years,” said Twiddledee.

But it wasn’t. And won’t be. The event may not be over, but there’s little doubt it’s a correction, not a crash – and sure as hell not a bear (a 20% dump lasting a few years). Markets don’t fall down just because they rise too far. They decline when prices grow too expensive and investors balk at paying them, or they reflect a deteriorating economic environment in which member companies see profits fade. Neither is happening.

The US and global economies are expanding as expected. Corporate profits are absolutely robust. American unemployment has turned into full employment. Trump and Rocket Man are making up. US tax cuts will feed business revenues. There’s a Tesla orbiting the sun. It’s all good.

Financial dudes who tell you they’re ‘adding alpha’ because they’re smarter than everyone else in the market are usually frauds. History shows Mr. Market cannot be timed. It also proves buying individual stocks is dangerous – there is a 70% chance of catastrophic loss. The best strategy is to (a) invest when you have the money and (b) spread it around.

Of course debt is everywhere. The Trump tax cuts will deliver a $1 trillion deficit in the States this year, and interest rates will bloat as a result. In many ways, society is just kicking the can down the road to be dealt with by a future generation. So long as economic growth is peachy, those debts can be serviced and everything carries on. When the next serious economic downturn takes place, we’ll have a problem. But it ain’t now. It might not be for decades. So no wonder a 71-year-old president really doesn’t care.

Meanwhile, how did the balanced & diversified beagle portfolio do in the over-hyped ‘carnage’ last week?

Just fine. On Friday, at the end of the worst week for stocks in years, it was down 1.8%, while the Dow had given up 9%. At the end of Monday, the damage was about 1%, and it likely won’t be long before the ink is green again. In other words, if you were happy with your investments at Christmas, you should be happy with them now. If we have another bout of this volatility and vapours, expect a similar experience. So why would you stress? Unless you’re not thinking like a pooch.

What a mistake that would be.