Portfolio manager calls out 'perma-bulls' for their 'bullshift'

Market's celebration is almost certainly premature, he says, warning of a potentially tough 2021 for capital markets

Portfolio manager calls out 'perma-bulls' for their 'bullshift'

A portfolio manager has taken aim at the “perma-bulls” he believes swarm the financial services industry and warned that 2021 could be far worse than 2020 for capital markets.

John De Goey, portfolio manager at Wellington-Altus Private Wealth, said he begged to differ with recent analysis that this is strong rebound. He believes what many are calling a rebound is “quite possibly an asset bubble of epic proportions” and took issue with those that think we are poised to start a new business cycle.

De Goey said: “The ‘beginning of a new cycle’ is quite possibly a reprieve from a major catastrophe that was merely averted, or delayed, due to unprecedented monetary and fiscal stimulus earlier in the year. Public policy levers have already begun to run their course.”

Too many “perma-bulls”, he added, consistently – and often self-servingly – divert investors’ attention towards a positive narrative.

De Goey said: “To hear them tell it, the glass is always half full, no matter what the circumstances are. I call this phenomenon ‘bullshift’. I am no bear, personally, however, I insist on looking at things in a balanced and measured manner. In more than 27 years in the business, I have never been so vexed by the macro environment as I am now."

He put forward a number of considerations for the U.S. market as to why we should be wary of over-optimistic bulls. De Goey said the CAPE Ratio for the S&P 500 is over 33, which is higher than any point in history save for the dotcom bubble at the turn of the millennium, while the Buffett Ratio is currently more than 183%. On a human level, COVID-19 deaths are spiking around the world – they recently hit 300,000 in the U.S. – unemployment is creeping up and more lockdowns are a real possibility.

“Things are about to get much, much worse before a vaccine becomes widely available,” he said. “The market’s celebration is almost certainly premature.”

He added: “We are being Pollyannaish if we delude ourselves into thinking the storm has passed. Rather, I believe we are feeling complacent while in the eye of the storm. It seems calm now.  Many think the storm has passed. Others are engaging in motivated reasoning – as if wanting it to be true somehow makes it true. However, when the storm passes through on the other side, it is very likely to be far more severe than the first portion.”

The portfolio manager stressed the importance of taking this approach, especially when dealing with clients’ nest eggs and lamented how the press so often conflates the broad economy with the narrow stock market.

He said: “Ironically, the market is traditionally a leading indicator – meaning we should expect markets to pull back before the broader economy softens. That hasn’t happened yet. Then again, 2020 is a year like no other, and just because we haven’t had a significant pullback yet doesn’t mean it can’t still happen. My guess is that 2021 will be far, far worse for capital markets than 2020 has been. I hope I’m wrong, but I call ‘bullshift’ on the narrative du jour.”

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