Breadth Thrusts & Bread Crusts: Cusp of Change

JC Parets
May 20, 2021

From the desk of Willie Delwiche.

A box of family photos showed up at my house this weekend. 

Some are relatively recent, others stretch back nearly a century. Together, they tell a story of generation after generation experiencing life in its many stages. Each one captures a moment

One that really stuck out to me was an image of a camping trip from more than 90 years ago. You can see an old car with a canvas tent pitched against it. At a picnic table, we see a lady and two young boys. The younger of these two is my grandfather. Next to him is his brother. Behind him is their mother (my great-grandmother).

“Now that's camping done right,” I thought as I inspected the picture.

You can see the caption “Niagara Falls, 1929” at the bottom of the photo. If ever there was a time when the next ten years would be night and day different from the decade that preceded it, that was it. Unbeknownst at the time, the Roaring 20's were ending and the US was on the cusp of the Great Depression.

Turning points often happen unnoticed. Shifts in the trend are discounted as aberrations. We see that play out in real-time as analysts' estimates and economists' forecasts struggle to keep up with reality. Expectation setters default to the view that tomorrow will be a continuation of yesterday, next year a repeat of last year. When you are on the cusp of change,  looking back provides little help for navigating the path forward.

That brings us to today. I don't believe we have been through the Roaring 20's (at least not from an economic perspective). I don't think a repeat of the Great Depression lies ahead, either. But some are making the case that we are now entering our own Roaring 2020s boom. 

I'm not so sure about that. Even if we are, we should remember F. Scott Fitzgerald's “The Great Gatsby” was a tragic tale warning about excesses -- not an allegory in praise of prosperity. 

When it comes to the financial market and investing, the situation is a bit different. The past decade has been an exceptional case of well-above average returns (for US stocks, for US investors). The weight of the evidence argues that the coming decade will be hard-pressed to generate returns that are in line with historical averages, let alone come anywhere near approaching what we just witnessed. For investors positioned for a continuation of the past decade, the coming decade could be a frustrating experience filled with psychological and financial tests.

Every period has its opportunities. This was true in the Roaring 20's, the Great Depression, and the past ten years. It will be true for the coming decade as well. Understanding where trends persist and where an important pivot has taken place is key to taking advantage of those opportunities, wherever they arise. 

 

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