Being negative can be great. Staying negative can be deadly. Because, almost all of 2022 will be remembered as a year of disappointment and discouragement. Not for bears. They were sometimes pushed back – but for the most part they had the seal race. Every time you got too excited, too optimistic, you got your arms ripped off by those damn bear claws, and not the kind they have at Dunkin’ Donuts. However, 2023 is already turning out to be a different year. Example: Mike Wilson, the genius of 2022, the most negative strategist – and therefore the most right-wing. He’s predicting another tough year ahead, although that’s not quite in line with his S&P 500 target of 3,900. 3,999. Wilson, whom I don’t know personally, expects a particularly pessimistic earnings season. Seven days ago, he predicted bank earnings, the kickoff, would rock the market by coming in sharply below expectations. In his winter “disconnect” scenario – everyone still wants to have fun with Shakespeare – he said he thought investors would be surprised at the size of the earnings adjustment. The Morgan Stanley strategist was right on the adjustment part, just in the wrong direction. The big four banks – JPMorgan (JPM), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C) – have seen their adjustments increase – and in some cases, like Wells, our biggest stake in the Club, quite dramatically. What happened? I think the banks are perhaps a bit microcosmic in that their revenues are significantly higher than expected, their expenses lower than expected, and their balance sheets much more intact than expected. Their forecasts were mostly for a mild recession, but they all saw the outlook for bad loans well below pre-Covid levels. I have always believed that banks are indicative of the future of commerce. If balance sheets are strong and lending conservative, a lot can be overcome, including fed funds — the Federal Reserve’s key interest rate — and 5% and 5% unemployment. There are two takeaways here. The first is that Wilson was pretty much wrong about big banks. Second, though, and more importantly, staying negative after a brutal 13 months, with tech still tumbling from its November 2021 perch, can be dangerous to an analyst’s health. Failing to recognize the high level of long-term rates and the advances in housing, industrials and even consumer stocks since then shows that an effort to limit yourself to projecting the S&P 500 could relegate you to the trash can. others who remained negative. I remember here two of the great tipsters of the 1980s, Elaine Garzarelli, strategist at Shearson Lehman and Robert Prechter, a disciple of Elliott Wave. Both were oddly right about the next Black Monday crash of 1987, with Garzarelli brilliantly accurate in a fierce bull-to-bear pivot just over a month before the crash. After that, we hung on to every word of the two. We only had the same words. Bearish words. They never changed. They wasted their injured status by not taking anything that changed for the positive and many did. I feel the same right now for Wilson and his ilk, which includes the usual gang of billionaires who have absolutely nothing to gain from being positive and everything to gain from being negative. Now, I agree that it’s incredibly easy to be negative. As the ever-eloquent Larry Fink, co-founder and CEO of BlackRock, the world’s largest asset aggregator, put it on his conference call: “The challenges the company has experienced not only during the past year, but since the pandemic, have eroded hope and heightened pessimism in many parts of the world.” He goes on to say, “We have seen declining birth rates and an increase in the aging population, a rise nationalism and populism and I fear we are entering a period of economic malaise”. This last word is usually only removed when you want to refer to the words of former President Jimmy Carter, one of the leaders The manifestation of Fink’s views could come as early as Thursday when cynics in Washington address the debt ceiling – once again revealing our rendezvous with nihilism and all its ramifications. son and. already have to be correct, they need the stock market to move from Wall Street to Washington, masking what I think are earnings that may look more like the big four banks than the bears will admit. Staying negative is so easy. At my hedge fund, we dutifully called the Prechter hotline each week after the crash for words of wisdom. We’d be incredibly wary of going long lest we encounter a Garzarelli interview or TV appearance. They were convincing long after a bottom had formed. They concealed it well. As someone who had money before the accident, I was very responsive to them. I had no desire to let go of my newfound injured status, at least among the investing community, and thought the only way to truly destroy it would be to turn positive. Fortunately, it took a few months to stabilize and rally without me to distance myself from these two sages. However, I was never positive enough in 1988 and missed some nice, easy wins. I know there will be segments that I think will breed pessimism, including retail and technology. The first, retail, could wilt because people are spending, as we know from comments from bankers. They just don’t spend it to fix their house or their wardrobe. They spend on travel and entertainment. Judging by the tiny drop in credit balances, the money can only go to this one winning spending class. There isn’t enough left for anything new at home except food. The second, much more problematic, could continue to decline due to a lack of trust in the companies that have created such incredible wealth, and as an example, let’s include Tesla (TSLA) in the mix. The most popular stories of the era that ended in 2021 were the mega caps and they were defrocked in 2022 in hideous fashion. They will have their highs, but they will show a level of cyclicality like Caterpillar (CAT) or General Motors (GM) used to. The same goes for once-loved enterprise software and fintech. Fortunes have been made in enterprise software and now fortunes are still being lost. Big banks have shunned not only the earning power, but also the actual existence of fintech. Today, mega-caps, hostages to advertising, still have the ability to reap billions in cost, but they seem reluctant as their brilliance seems to have been put on hold by their struggling corporate clients. Mega-caps that need a strong consumer could also be blocked. What is most important, however, is the end of the two-tier market of mega-cap and old-cap. It will not end with a gathering of caps to meet mega-caps. The 2022 postponement could be the bearish shock that periodically resurrects the reputation of bulls. Technologies and fintechs plus Washington will make the markets flirt with negativity. This is reminiscent of the post-crash of 1987-1988. There were times when those who remained negative were quickly vindicated and just as quickly tarnished by a rally. But this could be the year technology is bottled up in the S&P 500, empowering other areas that have shown only strength since October’s low, including industrials and financials. It’s hard to imagine these two groups being leaders in a mild recession, just as hard to imagine tech and fintech being left behind. Yet that’s what I see being charted as a possibility in 2023, something that seems impossible to reconcile except by revenue itself. So it may indeed be the winter of our disconnection. However, the disconnect could very well not be between the uptrend and reality, but between the downtrend and the future. (See here for a full list of Jim Cramer’s Charitable Trust stocks.) As a CNBC Investing Club subscriber with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY DUTY EXISTS, OR IS CREATED BY YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
Traders work on the floor of the New York Stock Exchange (NYSE) on August 5, 2022 on Wall Street in New York City.
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Being negative can be great. Staying negative can be deadly. Because, almost all of 2022 will be remembered as a year of disappointment and discouragement. Not for bears. They were sometimes pushed back – but for the most part they had the seal race. Every time you got too excited, too optimistic, you got your arms ripped off by those damn bear claws, and not the kind they have at Dunkin’ Donuts.
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