Back in April of 2020, in the midst of the Covid shutdown, we posted an item referring to the Michigan Consumer Sentiment. We wrote that "Michigan Consumer Sentiment is one of our favorite indicators. It has a long record for showing how the nation feels. And it's been a remarkably accurate indicator of financial market inflection points."
Well, here we are again. The latest reading of Michigan Consumer Sentiment has fallen to one of its lowest levels ever. This deserves a closer look. Here's the entire history in one chart.
This is the fifth instance of extremely negative readings. Consumers are not happy. Here's the good news: Each of the prior four episodes were wonderful opportunities for long-term investors to "just keep buying." Or at least to "stay the course."
✅1973-1975. The Nifty-Fifty (50 stocks you just had to own, forever) collapsed. Gasoline prices shot up to 50 cents a gallon! And you had to wait in a long line to fill up. The fourth worst bear market in history unfolded. In the following five years, the market soared by 99%.
✅1979-1982. Double-digit interest rates with inflation to match makes today's version look tame. The stock market languished. A Business Week cover story in 1979 announced "The Death of Equities." Those dead equities rose by 223% in the next five years.
✅1990-1991. More inflation that coincided with the beginning of the Gulf War and the end of the Soviet Union. Over the next five years, markets marched right over the wall of worry, up 64%.
✅2007-2009. The Great Financial Collapse. Surpassed only by the Great Depression of the 1930's for its depth, yet, within five years, market averages were 126% higher.
Does this mean to get whatever money you have and pour it into stocks? Absolutely not! Does it mean
to bite into what's being offered in an automatic, regular, thoughtful, and unflinching manner? Yes it does.
Depending on your age and circumstances, here are some general guidelines. DO CHECK WITH US TO TALK ABOUT YOUR ACTUAL SITUATION! These are only directional pointers.
If you are under 40, this will be one of only a few "opportunities of a lifetime." At least maximize your Roth IRA. Put 100% of the money into a low cost, global fund or ETF. Open a Treasury Direct account and stash money away in I-bonds for your deep, long-term, inflation-protected reserve.
If you're in the middle years, make your home mortgage interest rate fixed. Allocate 100% of your employment savings plan contributions to a blend of global equities. Keep a deep reserve of liquidity in bond funds or CDs.
If you're in the 4th quarter of life, it may be too late to benefit from an eventual market advance. But it won't be too late to benefit your heirs. Think in terms of two buckets: yours and theirs. For yourself, emphasize liquidity. For your heirs, emphasize possibility.
OK. Here's the blanket disclaimer.
It is still the early innings of re-setting the global economy. Previous similar periods lasted 2-4 years (at least) and had significant, long-lasting ramifications. Expect volatile markets. Expect political upheaval. Expect big-time fear-mongering and warnings that the-world-is-ending. The short-term is going to be very messy. But this is the price we pay for the eventual advantages. Patience, optimism, and a long vision will carry the day. We are making a bet on civilization.
In the words of our beloved Jack Bogle, "Press on, regardless!"
James Cosgrove, CFP, Plano, TX jim.cosgrove@verizon.net 972-489-0262
Jim Cosgrove, Partner, San Jose, CA jimcos42@gmail.com 408-674-6315 Twitter@JimCos542
