By Howard Marks
Adapted excerpt via Bloomberg
Every once in a while, when the economy and the markets are humming, there arises another belief that things are now different: that cycles have been put to an end, such that we no longer have to worry about the upswing turning into a downswing. For example, in pre-Depression 1929, an auto company president declared, “There will be no interruption of our present prosperity.” In 1996, while the tech bubble was building, the Wall Street Journal reported, “The big, bad business cycle has been tamed.” And former Treasury Secretary and New York Federal Reserve President Tim Geithner wrote in his autobiography, “Stress Test: Reflections on Financial Crises,” that in 2003, on the way to the global financial crisis, “There was growing confidence that [financial innovations and better monetary policy] had made devastating crises a thing of the past.”
In other words, the assumption was that good times in the economy can roll on forever; assets can appreciate without end; and investors needn’t worry about a correction, bear market or crash. Such “different-this-time” thinking is sorely wrong and potentially dangerous.
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