Armageddon is a Loser’s Bet

Recession warnings persist but the economic data should speak louder than the attempts to sell fear to the masses.

By Herbert Blank

Despite all the negative-to-flat market expectations from Wall Street specialists and other pundits that frequented CNBC in 2023, the recession they feared did not manifest itself, soft landing or otherwise.

The economy continued to be strong enough to avoid negative GDP growth. S&P 500 Index ETFs, including SPLG, continue to outperform other broad-based benchmark ETFs while the Nasdaq-100 ETF, QQQ, is poised to put another impressive year into the books.

Despite predictions of a long-cycle value regime following the problems growth had in the first half of 2022, growth continued to beat value and large-cap continued to beat small-cap.  Let’s look at the numbers from January through November of 2023.

 Anger is Fueling Distrust

So why were so many strategists and economists so wrong in predicting that 2023 would be a tough slog for both the markets and the economy?

As it turns out, the big economic story of 2023 is not a recession, as many had predicted — it’s the disconnect between consumer sentiment and behavior.

Unprecedented levels of anger and distrust of the government and at each other are indeed what is fueling the total disconnect between perception and reality: The economy is doing well. Unbridled pessimism and distrust for the government has distorted perceptions.There are good reasons for many involved in this cycle to sell fear to the masses.

The “super-fuels” that both parties and their affiliated media keep pushing are anger and fear. In the history of our two-party system, raising the spectre of fear at what could happen if the other party took power had never before reached today’s crescendo of Armageddon warnings. And guess what? Political donations have never constituted a higher percentage of disposable income.The motivations are clear.

Back to the Economy

I predicted in articles in ValuEngine Inc., TalkMarkets and LinkedIn — and to my Financial Markets Investment Club — that both the economy and the stock market would be up this year, the latter from 6 – 10%. There were many reasons for my rebound call.

First, as more-than-full employment rates continued, I thought that calls for 7% unemployment were absurd for many structural reasons. We still have supply chain issues and very selectively few inventory gluts. One major thing: Social Security cost-of-living adjustments (COLAs) went up 8.9% but inflation was likely to get to 5% by midyear. There was also an increase in the IRS standard deduction. Both of these late 2022 acts of Congress meant that consumers would have more than enough spending power in the coming year despite higher nominal prices.

Other independent analysts and I saw this as self-evident. Yet somehow, no economists or strategists were talking about that as they had their own corporate and political agendas.  Doom and gloom predictions grab headlines and spur imaginations and conspiracy theories.

The bottom line is that fear sells and foments into distrust and anger. However, while U.S. consumers still have spending power, Armageddon is a loser’s bet.

Herb Blank is a senior quantitative analyst at ValuEngine and senior consultant and practice leader in the Global Finesse Product Strategy and Implementations Consulting Practice. He has more than 30 years of experience in financial product innovation and quantitative analysis. Recognized as a pioneer in the exchange-traded fund (ETF) industry, Blank established the first family of ETFs to trade on the NYSE and was a portfolio manager for the fund. He is credited with the product development and launch of iShares, GLD and X Shares. He is also well known for developing construction and maintenance methodologies for Dow Jones Global Indexes.

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