Party Time?

The surge in stock prices around the world in the first quarter serves as a reminder that predicting market trends can be a frustrating business. Six months ago, the outlook for stock prices appeared to be fading from grim to grimmer: Politicians were wrangling unsuccessfully to craft a deficit reduction plan, Standard & Poor’s had removed its AAA rating on US Treasury obligations, and Greece appeared one step away from defaulting on its debt. Yet just when many investors least expected it, stocks staged a powerful rally. As the news excerpts below suggest, it is worth recalling the Wall Street adage that “bull markets climb a wall of worry.” “People assign much higher probability to the truth of their opinions than is warranted. It’s one of the reasons people trade so much in the market, generally with bad results.” Daniel Kahneman Food for thought!


August 5, 2011—S&P downgrades US Treasury debt to AA+ from AAA; stocks plunge in the biggest selloff since 2008. September 5, 2011—Gold reaches a record high of $1,895 per oz. (London Fix). September 19, 2011—Wall Street chief equity strategist: “I don’t think we’ve seen the lows for the year by any stretch. Things have to get much worse before they get better.” September 23, 2011—Journalist: “The world economy once again stands on a precipice.” September 26, 2011—Investor: “I don’t see anything changing in the next two or three years.” October 1, 2011—Economist cover story: “Unless politicians act more boldly, the world economy will keep heading towards a black hole.” November 20, 2011—Consumer goods CEO: “Consumers everywhere continue to be cautious and hesitant to spend.” November 28, 2011—Moody’s Investors Service warns that multiple countries could default on their debt. November 29, 2011—AMR Corp., parent of American Airlines, files for bankruptcy. January 18, 2012—Eastman Kodak files for bankruptcy. January 25, 2012—Report from Davos World Economic Forum: “Global elite fears renewed downturn.” February 27, 2012—Money manager: “This is a business-as-usual overpriced market and you’ll get a zero return for seven years.”


E.S. Browning, “Downgrade Ignites a Global Selloff,” Wall Street Journal, August 9, 2011. Sudeep Reddy, “Job Growth Grinds to a Halt,” Wall Street Journal, September 3, 2011. Quotation from Adam Parker, chief US equity strategist Morgan Stanley. Jonathan Cheng, “Wall Street’s Optimism Fades,” Wall Street Journal, September 19, 2011. Chris Giles, “Financial Institutions Stare into the Abyss,” Financial Times, September 22, 2011. Tom Lauricella, “Pivot Point: Investors Lose Faith in Stocks,” Wall Street Journal, September 26, 2011. “Be Afraid,” Economist, October 1, 2011. Phil Izzo, “Bleak News for Americans’ Income,” Wall Street Journal, October 13, 2011. Kareem Fahim, “Qaddafi, Seized by Foes, Meets a Violent End,” New York Times, October 21, 2011. Quotation from Jim Skinner, chief executive of McDonald’s. Jeff Sommer, “From the Mouths of Executives, Little Comfort,” New York Times, November 20, 2011. Jonathan Cheng and Brendan Conway, “Panel’s Failure Sinks Stocks,” Wall Street Journal, November 21, 2011. Quotation from David Rosenberg, chief market strategist, Gluskin Sheff & Associates. Tom Petruno, “Wall Street Gets Cautious on Earnings,” Los Angeles Times, November 24, 2011. Brendan Conway and Steven Russolillo, “No Year-End Stock Surge in Sight,” Wall Street Journal, November 26, 2011. Liz Alderman and Stephen Castle, “Dire Warnings Are Building on European Debt Crisis,” New York Times, November 29, 2011. “Nowhere to Run—The Motor City Flirts with Fiscal Disaster,” Economist, December 10, 2011. Ronald D. White, “Gas Prices Ring in 2012 at a High,” Los Angeles Times, January 6, 2012. Chris Giles, “World Bank Warns on the Risk of Global Economic Meltdown,” Financial Times, January 18, 2012. Chris Giles, “Pessimism Hangs in Mountain Air,” Financial Times, January 25, 2012. Tom Lauricella and Jonathan Cheng, “Too Late to Jump Aboard?” Wall Street Journal, February 13, 2012. Ajay Makan, “S&P 500 at Post-Crisis Peak but Investors Remain Wary,” Financial Times, February 25, 2012. Quotation from Jeremy Grantham, chief investment strategist, GMO. Leslie P. Norton, “Not So fast: Coping with Slow Growth,” Barron’s, February 27, 2012. Brian Blackstone, “Poor Economic Data Slam Europe,” Wall Street Journal, March 2, 2012. Quotation from Liz Ann Sonders, chief investment strategist, Charles Schwab. Nikolaj Gammeltoft, Inyoun Hwang, and Whitney Kisling, “The Bull Turns Three. Where’s the Party?” BusinessWeek, March 12, 2012. Ajay Makan, “Wall Street Braces For Hit to Soaring Markets,” Financial Times, March 19, 2012.

Duncan R Glassey
Senior Partner – Wealthflow LLP

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