Over at least the past five years, the financial and political community has seen one drama play out after the next, each incident a great hook for the media, coming with dates and deadlines for things to get better or worse, with a tinge of self- fulfilling prophecy.
The problem may not be the crisis, so much as a “crisis addiction.”
In the last year alone, we have moved from the fiscal cliff to the federal government shutdown to the prospect of hitting the debt ceiling, and that ignores the “Will they or won’t they and when” storyline of the Federal Reserve cutting back its support for the economy that has been a nearly constant undercurrent to all market outlooks.
With each passing crisis, investors need just a bit more to stay interested, thus bigger, scarier headlines to keep them from tuning out, whether the events warrant that kind of attention or not.
Meanwhile, each event is weighed and measured as a possible “investable moment,” the proverbial buying opportunity or the wicked value trap.
And yet, what investors most need to remember is that making snap decisions based on current events is far more likely to do long-lasting damage to a lifetime portfolio than any of these passing news events.
While the current federal furloughs – and ancillary cutbacks that have been spreading throughout supporting private businesses – could do real damage to the finances of the affected worker, there is no 35-year-old investor who will look back in three decades saying, “I got to retire five years early thanks to all the money I made around the government shutdown of 2013,” just as there are no senior citizens today reminiscing about how their retirement was delayed because of how they invested around the closure of 1976.
Perhaps the best proof that investors don’t want to derail their long-term plans around the latest crisis is that experts – judging from the market observers who have talked with me on my show MoneyLife since the shutdown began – are split over whether investors should be bargain-hunting or searching for shelter during any downturns associated with current events.
Elaine Garzarelli – who earned her Wall Street legend by being just about the only forecaster to correctly call the 1987 market crash – noted that there have been 17 shutdowns since 1976, and one debt-ceiling stalemate (in 2011).
“I think the media’s got to do something,” said Garzarelli, who runs Garzarelli Capital. “We’ve been through this before. The stock market basically does the same thing, it just might happen a little faster and a little more extreme.”
Garzarelli is one of several experts to fall into the “no big deal” category. In fact, most experts agreed that the debt-ceiling issue has far more potential to be damaging than the shutdown.
“The debt ceiling, you can’t really fool around with that because the minute you start raising the specter of borrowers not going to honor the obligations for whatever reason – and this one is ridiculous because rarely do people default on their debts because they decide that they shouldn’t have taken them on and don’t want to pay them you hasten a diminished view of the United States as a global power,” said Zachary Karabell, president of RiverTwice Research.
And that’s precisely why even the optimists are saying they would not view the shutdown as a buying opportunity, at least until they see how the next looming event plays out.
Patrick O’Hare, chief market analyst for Briefing.com noted that “if you get up to the Oct. 17 deadline and you still have Congress playing with fire and maybe you don’t get that agreement on that drop date, then people could get really nervous and you could see some nasty price action to the downside.”
O’Hare acknowledged that the consensus view “is that you’ll see a nice, big rally after this deal gets done,” but he said that’s why there is more downside risk in this situation than buying opportunity.
But Brian Sullivan, chief investment officer at Regions Investment Management, speaking for that consensus, said that investors need to keep the situation in perspective and step away from the rhetoric.
“There is real trouble from a governmental standpoint, there is not real trouble from an investment standpoint,” Sullivan said. “The fact that our government can’t operate is a serious, serious issue, but it’s not one that is going to affect the economy in the long run. It is, for investors, just noise, and an opportunity in my opinion to invest in stocks on the cheap.”
The interesting takeaway from a series of interviews that have led to anything but agreement on what happens next is that for all of its problems, investors will still find the domestic market more attractive in the long run than bonds and most foreign markets.
Forget the short-term potential trading opportunity or scare, and both sides seem to agree that they’ll continue investing in domestic stocks, because for as bad is it seems right now, it’s still the market where they feel most comfortable for the long term.
What’s more, don’t look for a crisis – and change investment plans – as if you are in one. Tom McIntyre noted that long-term bonds still yield next to nothing and that gold prices have continued to fall, not the kind of thing anyone would expect in a situation when an implosion appears imminent.
The troubles of 2013 – from the fiscal cliff to sequestration to the shutdown and the debt ceiling – have all occurred while the market was reaching new highs.
“These are not real crises in the sense that we saw in 2008 when the banking system was at risk or in 1998 when Long-Term Capital had leveraged the entire financial global accounts to the point of danger,” McIntyre said. “Those were real crises. I’ve seen crises and I have seen this, and this is not what I would call a real crisis.”Chuck Jaffe is senior columnist for MarketWatch. He can be reached at email@example.com or at Box 70, Cohasset, MA 02025-0070.