Permabears and the Bull Run

Steve Russell

This column was begun on a weekend after the stock market took a serious dive, which most market watchers agree was caused by the excellent news on job creation. One of the earliest surprises I got from wading into stock picking was that good news for Main Street is often seen by Wall Street as bad news. In this case, the economy picking up means to Wall Street that the Federal Reserve Bank will raise interest rates from the effective zero the Fed instituted to bring us back from the brink of another Great Depression.

I can’t let this go without observing that everybody knows monetary policy is a blunt instrument for dealing with recession, but the deadlocked, dead head, dead wood, dead end Congress could not put together a serious fiscal policy and Congress forced the Fed’s hand by being asleep at the switch, a slumber from which Congress has yet to awaken.

So, in the week before I started writing, the job numbers surprised to the upside and the stock market went into a swoon, anticipating that the Fed will raise interest rates too soon or too quickly and the recovery will then jump the rails. Or that stocks have been artificially inflated by easy money, which runs investors out of the bond market because bonds don’t pay enough and the money flees to stocks, causing a bubble that will pop when the Fed lets rates rise.

Why do I care? Why should you care?

Neither the Great Depression nor the Great Recession had to happen. They were the result of government policies that did immense harm to you and me. We are mice in an elephant stampede and so far we are failing the duty democracy imposes to herd the elephants. That scenario will not end well for us or for democracy.

Most Indians, like most Americans, own no stocks or bonds directly. However, the lucky few who still can keep one job long enough to earn a retirement income depend for that income on the stock and bond markets that are kept honest and solvent by watchful government regulation. Or not.

Without a retirement income, you are left to burden your children or thrown on the tender mercies of that same government that can’t be bothered to keep the markets honest and the unions that opened access to retirement income for the middle class strong.

I'm more cautious in my stock picking game now that I have two elders needing skilled nursing and I must fill their money deficit by trading stocks.

Because of my responsibilities, I can't say I paid no attention to the selloff. It cost me some hours of research, but I bought when the markets opened on Monday, feeling lucky to have some dry powder.

I have many friends in what I call the permabear community. Their politics are either far right or far left, but they agree, for differing reasons, that Great Depression II has only been postponed and not averted.

Those on the right lament the demise of the gold standard and the Fed printing money to fight unemployment. Those on the left are concerned about peak oil and the neoliberal economic globalization that equalizes everybody down rather than up.

There have been permabears ever since the 1944 Bretton Woods Conference reshaped the international economic system or, as some would say, created it. The permabears have been really loud in the run-up to the turn of the century—remember the Y2K disaster scenarios? But some have been in full cry since the seventies and they remind me of millenarian cults. Each time Jesus does not come, they become more certain.

The permabears rejoiced in 2000-2002 and 2008-2009, when they briefly could believe Jesus or Big Bear or whoever was coming down from the clouds to flay the stock market for the sins of pride and gluttony.

I was not directly in the market for the first crash, but I had just dipped my toes in when the second one happened and the very first money I put in evaporated before my eyes. My response was to spend days dissecting my dinky portfolio (I did not own a full lot—100 shares—of anything) and getting really serious about wheat and chaff.

I also read up on the Great Depression and came to the conclusion that those who wound up trying to rent a window to jump out of (as Will Rogers famously remarked) were guilty of one or both of two major mistakes. They either lacked what market guru Jim Cramer calls "the only free lunch," diversification, or they panicked and sold into everybody else's panic.

Just as a gain is not a gain until you sell, a loss is not a loss until you sell.

Uncharacteristically, Congress did something for retired folks during the Great Recession by suspending the minimum required distribution from retirement accounts. Unchecked, the MRD requirement would force seniors to sell into the panic and be much worse off later. Unbelievable, but even a blind pig occasionally finds an acorn.

Back in 2008, after giving my portfolio the hairy eyeball and reading up on the Great Depression because a repeat seemed about to happen, I separated the wheat from the chaff and bought the wheat all the way down.

I won't say that was easy to do. I learned from some skeptics who were not even permabears the phrase "catch a falling knife." By the time the dust settled, the chaff had cost me hundreds of dollars but the wheat had made me thousands.

Two things enabled me to overcome the fear.

First, I learned that those who kept their heads during the Great Depression suffered only a few years of dead money. They made nothing but they lost nothing.

Second, I came to the realization that if the worst gloom and doom scenarios being painted ever since Bretton Woods by both the far right and the far left ever came to pass, the damn stock market would be the least of my worries.

Another thing I've learned since getting into the market is that the very best players have a way with aphorisms. I cited a bunch of them in the series I wrote on bargain basement investing for Indian Country Today Media Network.

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"Bulls make money; bears make money; hogs get slaughtered."

"Don't fight the Fed."

"Be greedy when others are fearful and fearful when others are greedy."

"The market can stay irrational longer than you can stay solvent."

All of the above are clever words of wisdom. All illustrate truths that can be tricky to put into practice.

The aphorism that bucked me up to buy into this last skid came from the legendary Sir John Templeton:

"Bull markets are born on pessimism, grown on skepticism, mature on optimism and die on euphoria."

Listening to the chorus of permabears who do not believe the recovery is real, I know the commentariat is somewhere between pessimism and skepticism. Therefore, I bet the needs of my elders that the bull would run a bit longer.

Fast forward to last week, when employment numbers surprised analysts to the downside. It was bad news for Main Street. The result? Wall Street went on a tear.

Watching this see-saw over the years—pain for ordinary people means gain for the one percent and vice versa—I’ve learned how to profit from it. But I was born and raised at the bottom of the capitalist pyramid.

I now understand that “one percent” is just a handy political construct. In fact, one tenth of one percent is closer to the truth.  It’s easy to demonize people you don’t know and I’ve never even met anybody from that top income stratum, let alone spent time getting to know them.

I don’t have to know them to see the Tax Code favors them over my people and every year the first rate education the taxpayers subsidized for me becomes harder for children of working people to acquire. I don’t have to know them to see they bounced back from the Great Recession—many of them at public expense—much quicker than my relatives and friends.

Finally, I don’t have to know them personally to observe that they are remarkably free of permabears. In their world, where the government always takes their interests to be the public interest and they know that nobody named Bush or Clinton will ever change that, the market will always be on a bull run.

Steve Russell, Cherokee Nation of Oklahoma, is a Texas trial court judge by assignment and associate professor emeritus of criminal justice at Indiana University-Bloomington. He lives in Georgetown, Texas.

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