FEMALE VOICE:  This podcast has been prepared exclusively for institutional, wholesale, professional clients and qualified investors only, as defined by local laws and regulations. Please read other important information, which can be found in the link at the end of the podcast episode.

[background music]

MR. MICHAEL CEMBALEST:  Good morning, this is Michael Cembalest with the November 2019 Thanksgiving Eye on the Market. This month our topic is the Armageddonists. Now, what is that about? Recessions and bear markets are a fact of life. They happen intermittently, but something peculiar happened after the financial crisis that I hadn’t seen before, which is the rise of this Armageddonist community which is a bunch of market watchers and forecasters and some money managers who’s apocalyptic comments tend to spread like wildfire on the internet and also in print.

     I can understand in part the reason for their popularity. By 2010, we had experienced two consecutive bear markets over the last, prior decade, each one with equity declines over 40% and each time, it took several years for the market to recover, unlike the shallower recessions and bear markets of the 60s and 80s that were much faster to recover, and the dismal performance of what took place in 2001 and 2008 really doesn’t have any parallel in terms of being consecutive except for parts of the Great Depression.

     I also understand mega-bearish news appeals to people, right? Humans have negativity bias. Nobel Prize winner Daniel Kahneman looked at it. Stuart Soroka, who’s a political scientist, wrote a book in 2014. One of the things he showed was the negative correlation between magazine sales and the positivity of what was on the cover. In other words, the more positive the cover was, the less people bought it, and there was also an experiment the same year where a city newspaper deliberately published only positive news, and they lost two-thirds of their readers.

     So, that said, what are the consequences for people who listen to Armageddonists over the last 10 years? So we pulled together some comments from the usual suspects, and these are comments that we made since 2010. Some of these guys are on record for having anticipated the prior bear market, but we’re focused on what people said since 2010. And what we measured was the impact of an investor deciding to shift a dollar from equities to a diversified fixed income portfolio of government bonds, mortgage backed securities and corporate bonds, each time after reading their comments.  And what we wanted to measure was what was the opportunity loss for investors who paid attention to this stuff at the time. One example as, if you moved a dollar from equities to fixed income in 2014 in response to what was being said, you would have underperformed by about 40% as the bull market kept rolling on, and since it was mostly propelled by earnings and multiple expansion.

Now, of course, one day, these Armageddonists are going to be rewarded with a recession. Right now, CEO confidence has plunged something like two-thirds of respondents have responded to the Duke CFO survey that US will be in a recession by the end of the next year. We’re in an earnings recession right now, which means, on a year on year basis for this quarter and next quarter, earnings growth will be slightly negative. I don’t think we’re going to have an economic recession this year or next, because I think the health of the U.S. consumer, labor markets, housing and a modest rebound in manufacturing are going to prevent that. I could be wrong. The bigger issue is this. For investors that reacted to some of these Armageddonists, the next recession and bear market will have to be really bad in order to earn back what was sacrificed along the way. And using some very rough math, we’d have to have a bear market with 30-45 percent declines from peak levels to reverse some of the opportunity losses that people have suffered. Who did we look at here? Well, we picked some quotes from Paul Krugman and John Hussman, Peter Schiff, David Stockman, David Rosenberg, Albert Edwards, Mark Faber, Jeff Gundlach, Nouriel Roubini, you know, a lot of the people that you have seen on print and on TV a lot with comments about ultimate death crosses, which is a, I guess some chart reading thing, comments about 99% certainty of recessions, stock market crashes, home prices going to be below where they were in the last recession, et cetera, et cetera. And, look,these comments are different from regular money managers who say they are defensive from an asset allocation perspective, and the difference is this. A defensive asset allocation view is going to result in a five or 10 or maybe 15% risk reduction in a fully invested portfolio, where as some of these Armageddonist comments are essentially predicting a crash and recession that would require a wholesale reduction in portfolio risk.

So, if you take a look in the eye on the market this week, you’ll see a couple of charts on the history of bear markets and how severe they’ve been, and also a chart that depicts this whole portfolio assessment of the consequences of listening to these Armageddonists over the last decade.

How severe is the next bear market going to be? I don’t think it’s going to be bad as the prior two. I recognize it’s not saying that much, because the last two bear markets were really bad, but I think we’re going to have a shallower bear market, kind of like the ones we had in the 60s or the 1980s, for the following reasons. There’s been a huge reduction in global economic imbalances in terms of current account deficits and surpluses across countries that tend to contribute to the severity of balance of payment crises. There’s much higher levels of capital and decreased funding risk, mostly in the U.S. financial system and to a much lesser extent in the European financial system, much stronger balance sheet fundamentals of U.S. households. There’s a lot of statistics you can use to look at that. We show some of them here. Reduced risk in emerging markets because of higher level of foreign exchange reserves and also because lower new equity supply, the rate of buybacks and M&A relative to new issuance has been such that, I think for two or three years running, we have not had any net expansion in the stock of investable equity, which doesn’t mean the markets can’t go down but it means when you do have a bear market, they tend to recover more quickly. Look what happened last December. We had a 20% decline in the market a couple of days after Christmas and we had the fastest recovery in the history of any bear market in part because of those equity supply issues.

Now, there are definitely some counterpoints to think about. Valuations are well above median, underwriting standards have disintegrated in the leverage loan market after what the Fed has done starving people of income, and deficits are financing a big part of US growth, and as we discussed in the last eye on the market, there could be a seismic shift in Washington that imposes substantial taxes and regulatory costs on technology firms, energy, healthcare, financials, biotech, wireless, chemicals, you name it. It’s too soon to assess in terms of probabilities, but the chances of a fundamental reordering of the entire U.S. economy are definitely going up.

Even with all of that, I think that the next recession and bear market, when it happens, will not be as severe or long-lasting as some of the worst ones that we’ve seen recently, and if that’s the case, it would ratify the approach of a lot of money managers that maintained normal exposures to risky assets over the last decade, even as the business cycle was aging and as all this apocalyptic commentary was swirling around.

We end this month’s piece with a page on Illinois, because if you’re really looking for Armageddon, you can look there. There has, in slow motion, the tax base of Illinois is gradually disintegrating. We look at issues around the, it’s one of only two states in the country that has had negative population growth over the last decade. It leads the country in inter-state migration losses. We also look at adjusted growth income basis. Their home prices are stagnating and the latest plan that we’ve seen would move Illinois from 36 to 48th out of 50 in terms of a business tax climate, which increases the stakes even more if businesses and households decide to move into neighboring states who’s tax burdens and unfunded pension and retired healthcare liabilities aren’t nearly as bad.

So, there’s always some bad news if you want to look for it, but I thought it was an interesting time to revisit some of the more apocalyptic commentary that we’ve seen over the last decade and compare that to how things have actually turned out.

So, thanks for tuning in. The next eye on the market will be in early December. We have a holiday piece coming that you won’t want to miss, so thanks for tuning in and I will speak to you next time.

FEMALE VOICE:  Michael Cembalest’s Eye on the Market offers a unique perspective on the economy, current events, markets and investment portfolios and is a production of JP Morgan Asset and Wealth Management. Michael Cembalest is the chairman of market and investment strategy for JP Morgan Asset Management and is one of our most renowned and provocative speakers. For more information, please subscribe to the Eye on the Market by contacting your JP Morgan representative. If you’d like to hear more, please explore episodes on iTunes or on our website. This podcast is intended for informational purposes only and is a communication on behalf of JP Morgan institutional investments incorporated. Views may not be suitable for all investors and are not intended as personal investment advice or as solicitation or recommendation. Outlooks and past performance are never guarantees of future results. This is not investment research. Please read other important information, which can be found at www.jpmorgan.com/disclaimer-EOTM.



诚然,极度悲观的新闻消息与人类的消极偏见思想不谋而合。不少学者也曾经针对这个话题开展深入研究,当中包括诺贝尔经济学奖得主丹尼尔·卡尼曼(Daniel Kahneman)在2011年出版了《大脑与人类生存本能》1一书,政治学家Stuart Soroka曾经阐释杂志销量与杂志封面发放正面消息之间的反比关系2;还有在2014年进行的一次实验中,一份城市报纸尝试只故意发布积极正面的新闻消息却在一天之内失去了三分之二的读者。

话虽如此,自2010年以来可怕的末日预言在电视广播和互联网大肆泛滥,对此做出应对的投资者目前的投资表现如何? 按此查看全文。 


1 「人和其他动物的大脑包含一种机制,可以优先处理坏消息。通过将发现捕食者所需的时间缩短百分之几秒,这个回路提高了动物存活到可以繁育年龄的几率。」丹尼尔·卡尼曼在2011年出版的《快思慢想》一书中曾经指出。

2 在《民主政治的负面性》(剑桥大学出版社,2014年)一书中,Stuart Soroka还探讨了负面新闻加大心理因素影响,包括心跳率和皮肤导电性的变化。


每1美元资金从标普500指数转投巴克莱综合债券指数对业绩的影响,按从表1中末日论者发表评论当周到2019年11月8日的表现衡量 资料来源:摩根资产管理,彭博。2019年11月8日。使用标普500指数和巴克莱综合债券指数的每周数据计算。