Can the sky sometimes tell us something about markets?
Illustration: Larissa Koshkina. Source: Pixabay
Two years ago we had no idea what was coming. Most folks approached the end of 2019 with the usual mix of hope and fear – hope for better times ahead, fear that the best might be behind us. A random sampling of my own writing during 2019 included postings on Big Tech’s mid-life crisis, risk management, the return of platform shoes, and – ironically – an essay on managing change, posted 10/1/19, the day after my own circumstances changed radically.
In March, it felt like the world was coming to an end. The Covid crisis led to an everything-sell-off. Institutions scrambled for cash, and the most liquid instruments – Treasury securities, blue-chip stocks, money market instruments – faced the most intense selling pressure. Individuals and institutions didn’t know how long the shutdown would last, and the only thing that mattered was cash in the bank. I hadn’t seen this sort of synchronized panic since October 1987, when both the stock market fell by 35% and the bond market fell 20%:
Late 1987 S&P 500 and 30-year US Treasury markets. Source: Bloomberg
Here’s how this looked In early 2020: the stock market fell 35%, the bond market fell 20%.
Early 2020 S&P 500 and 30-year US Treasury markets. Source: Bloomberg
Of course, these were different times, different crises, different rules. And the trends and levels were different, especially in interest rates. It’s as hard to imagine an 8.75% yield on US Treasury Bonds now as it was to imagine a 2.625% yield on 30-year Treasuries back then.
But one thing remains constant: human nature. Then, as now, there were predictions of doom. Then, as now, people underestimated the creativity of the human spirit. Now, as then, there have been calls for the nationalization of critical institutions. Now, as then, panic led to permanent portfolio losses, while investing strategically with a long view has consistently added value. I remember my boss in 1987 telling us to “back up the truck and load it.” That was sound advice in the middle of a crisis. He deserved a raise.
I remember walking out in the midst of the crisis into the night air on March 18, 2020, wondering the same thing. Then I saw the Moon, Jupiter, Saturn, and Mars all lined up within a handsbreadth:
Photo: Doug Tengdin
You can find the same photo taken over New York City in a Forbes Magazine post from the same date. Over 2000 years ago, astronomers tell us there were two stellar conjunctions, separated by about a year. The stories tell of astrologers who observed this and journeyed to the Roman province of Judea to see what it might portend. Chinese writings tell of a nova happening at the same time. Ancient authors often saw comets, novas, and other heavenly phenomena as signs that pointed to something tremendous.
Whatever the source, the heavens were telling a story of upheaval and change.
It may be a matter of “recency bias” – where people remember unrelated events surrounding a tumultuous period. It’s true that our memories are sharpened when we are emotionally engaged. Pam and I certainly have vivid memories of the times when our children were born – the “Peak-End” rule. But I certainly don’t recall any stellar or planetary lights!
Were there any significant celestial events in 2021, or will there be any in 2022? Not to write home about. And the total eclipse of the Sun on August 21, 2017, didn’t seem to portend anything more significant than a 22% rise in the stock market and falling bond yields. Those were the days!
The last year saw a resurgence in inflation, soaring equity prices, a brewing conflict with an aggressive Chinese regime, and rage against the financial machine in meme stocks, cryptocurrencies, and potentially revolutionary tax-law changes that eventually went nowhere. What’s next? The best advice I’ve heard comes from Shakespeare’s Julius Caesar: “The fault, dear Brutus, lies not in our stars, but in ourselves.” Instead of looking at the sky for portents of the future, we should mind our own circumstances and opportunities. There’s plenty of insight to be gained there. Whether there’s a crisis or steady markets, the best approach is one that’s tailored to our specific needs and circumstances.
Merry Christmas and Happy New Year everyone! See you in 2022!