The Fear Bubble

Everyday in the media, we hear about the so-called fear/uncertainty bubble, ​wherein individuals and businesses aren't consuming or investing. Whether due to weak labor markets, a political standoff in Washington despite urgent need for fiscal policy change, or the belief that the European debt and growth problems can only get much worse, retrenchment seems to be the dominant theme.

Yet, within this context, the US stock markets are exhibiting a classic trait - climbing  a proverbial wall of worry​, seemingly ignoring  fear and uncertainty. ( Here's a quick check - year-to-date, the Dow is up nearly 8%, the S&P 500 is up 11.5%, and the Nasdaq is up nearly 16%.) Perhaps these markets, which like all markets move on the basis of expectation, are recognizing that the massive fiscal and monetary stimulus prevalent everywhere in the world will sooner or later lead to a resurgence of economic growth and, with the usual lag, a strengthening in the labor markets. And perhaps they also recognize that current economic metrics, with the US 10-year bond yield at a near-historic low of 1.7%, general inflation nowhere on the horizon, and corporate liquidity at record highs, provide at least the appropriate framework for stronger economic growth. Compare these metrics with those in, for example, the early 1980's,  with mortgage rates in the high teens, small-business loans above 20%, inflation raging at well over 10% per annum, and the unemployment rate in the double digits. More than fear, the prevalent thought in those years was that no one would ever again be able to afford a home purchase!

So, just maybe, it's time to think that our current collective angst is just a bit overdone.​