Santa Claus. Ebenezer Scrooge.
You know these two names very well.
They are fictional characters. Classic archetypes that loom large in our popular imagination. We all grew up with stories about them.
But here’s the thing. Both fictional characters actually contain an element of truth.
Chances are, you know someone in real life who’s like Santa Claus. This person will tend to be cheerful. Hopeful. Generous.
Chances are, you also know someone in real life who’s like Ebenezer Scrooge. This person will tend to be gloomy. Cynical. Tight-fisted.
Source: Image generated by OpenAI’s DALL-E
Unfortunately, in the world of finance, you will come across economists behaving more like Scrooge than Santa:
- For example, in August 2022, an economics professor named Steve Hanke had a terrible warning for America: ‘We’re going to have one whopper of a recession in 2023.’
- Later, in October 2022, Bloomberg backed up that sentiment with a devastating prediction of their own. They said there was a 100% probability of a US recession within 12 months.
- Then, in November 2022, The Economist published a terrifying piece with this title: ‘Why a global recession is inevitable in 2023.’
- By December 2022, a shocking poll was released by the Wall Street Journal. It revealed that 70% of economists were convinced that 2023 would be the year of devastation.
Yes, the suggestion here was clear:
- We were experiencing the sharpest interest-rate rise since 1988. This escalation in borrowing costs would demolish employment. Strangle consumer spending. And pitch America into the financial abyss.
- Therefore, this was the time to flee from the stock market. Forget risk-on. Say hello to risk-off. You’d be safer if you stopped investing entirely.
Except…of course…no such doomsday event happened. In 2023, the sun continued to shine. The birds continued to sing. And the S&P 500 rose by over 24%:
- This meant that investors who acted like Santa Claus clearly benefited. They were optimistic, so they stayed invested.
- Meanwhile, investors who acted like Ebenezer Scrooge clearly lost out. They were negative, so they exited the market at precisely the wrong time.
However, even amidst the rising bull market, the economists still didn’t give up on their pessimism. They continued to double down on their predictions:
- In April 2023, Steve Hanke (yep, that professor again) stubbornly dug in his heels. He insisted he was right about an impending catastrophe for America: ‘We know the recession is baked in the cake.’
- Later, in November 2023, Charlie Dougherty, senior economist at Wells Fargo, said that a recession would loom for 2024.
- Then, in December 2023, Robert Kiyosaki (yes, the author of Rich Dad Poor Dad) also jumped on the cynical bandwagon. He said in a tweet: ‘Get some cash out of banks as you need cash. This may be the start of the biggest crash in history.’
Of course, no such apocalypse has taken place. In 2024, the sun continued to shine. The birds continued to sing. And the S&P 500 has risen by another 25% so far:
- Now, here’s a classic quote from Laurence Peter: ‘An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.’
- Here’s another wise saying from Peter Lynch: ‘Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.’
Indeed, what is fascinating for me is that the traders in the marketplace have actually done better than the experts when it comes to making predictions:
- For example, Polymarket is considered the world’s largest prediction platform. It allows punters to put their money on where their mouths are. By making a bet on future outcomes.
- So, Polymarket predicted that the chances of a US recession happening in 2024 was pretty small. In fact, over the last three months, the odds have mostly hovered between 2% and 6%.
- This is totally the opposite of what most economists have predicted. They always seem to claim that the odds of a recession are 100%. Which is never the case.
- So, this begs the question. Are the economists in their ivory towers completely out of touch with reality? Is it time for them to stop being so elitist and preachy? Is it time for them to humbly move down to the street level? Perhaps mix with the common people for a change?
Well, regardless of what you might think about economists, one thing is for sure. During this Christmas season, I believe it’s far better to be Santa than Scrooge:
- As 2024 draws to a close, we have much to be grateful for. Despite the negative rantings of misinformed experts, nothing apocalyptic has happened. The planet continues to spin. The market continues to advance. And people everywhere continue to show courage and resilience.
- We are now looking ahead at 2025. What’s the next big catalyst for financial progress? Well, here are four important wealth trends that we are watching very closely…
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