A Harsh Truth, or a Contrarian View
In a recent Morningstar article, the author pointed out a few things.
“It feels like the economy has gone through three cycles in the past six years. The future looks very messy and uncertain, yet there’s no shortage of pundits that claim to know what will happen tomorrow.
But predicting the short-term direction of the economy has always been that way. ….
The media and investors alike are subject to recency bias: the tendency to place more emphasis on recent news and events than on older circumstances. There has been no shortage of economic disruptions over the past six years. Since mid-2019, the global economy has endured a pandemic, multiple supply chain disruptions, a short bout of inflation, and geopolitical tensions. Through all of that, real US GDP grew at about 2.3 percentage points annualized between July 2019 and March 2025.
It’s easy to get hung up on past problems and miss what’s important….
The US economy’s current situation has never looked better. Economic output, as measured by real GDP, currently sits near an all-time high. Real GDP broke $23 trillion in early 2024, and it is on pace to surpass $24 trillion in the next year. Inflation has cooled down to about 3% over the past 2.5 years, which is slightly lower than the long-run 3.5% average the US has experienced in the post-World War II era since January 1948.
Employment figures also look great by historical standards. The unemployment rate has hovered around 4% over the 12 months through June 2025, or below the long-term average of 5.7% dating back to January 1948. Further, the US economy has continued to employ more and more people as it has grown. It employed nearly 160 million Americans (excluding volunteers, farmers, and those self-employed) at the end of June 2025—an all-time high….
There are two major lessons that investors can glean from that data. First, publicly traded corporations perform most of the heavy lifting. Investors benefit by getting exposure to the market and reducing, if not eliminating, anything that drags on performance.
The second lesson is remaining steadfast when the inevitable drawdowns occur. Charlie Munger, Warren Buffett’s late business partner, summarized it best:
“I think it’s in the nature of long-term shareholding with the normal vicissitudes in worldly outcomes and in markets that the long-term holder has his quoted value of his stock go down by say 50%. In fact, you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you are going to get…”
Munger spoke a harsh truth, but it’s one that all successful investors eventually make peace with. Shareholders are compensated for bearing risk. Some of those risks come from individual companies or market segments, while others are consequences of the economic cycle.”
https://www.morningstar.com/funds/big-secret-long-term-investment-success
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I am aware of a few dark clouds. The full impact of tariffs is not yet known. AI will displace workers. We simply don’t know how many and which skills. For example, Microsoft is laying off about 4% of its workforce, about 9,000 people. Other large corporations will do the same. Housing remains a problem. The home price-to-income ratio has risen from 3.5 in 1985 to 5.0 in 2025. (Years of income to buy the typical home). However, a 30 year mortage is about 6.8% whereas in 1985 it was 12.4%.
I also know that the recent economic reality isn’t what some were hoping to hear. There are those who were convinced otherwise and are betting on disaster. Of course, if that occurs they will go down with the ship, too. The most perverse are actually wishing for disaster. But, for long-term, rational investors, things have been very good.
Yes, a market correction is coming and there will be a recession. You can bet on that. But, while waiting for the inevitable don't hold your breath and don't get ahead of your skis.
“It feels like the economy has gone through three cycles in the past six years. The future looks very messy and uncertain, yet there’s no shortage of pundits that claim to know what will happen tomorrow.
But predicting the short-term direction of the economy has always been that way. ….
The media and investors alike are subject to recency bias: the tendency to place more emphasis on recent news and events than on older circumstances. There has been no shortage of economic disruptions over the past six years. Since mid-2019, the global economy has endured a pandemic, multiple supply chain disruptions, a short bout of inflation, and geopolitical tensions. Through all of that, real US GDP grew at about 2.3 percentage points annualized between July 2019 and March 2025.
It’s easy to get hung up on past problems and miss what’s important….
The US economy’s current situation has never looked better. Economic output, as measured by real GDP, currently sits near an all-time high. Real GDP broke $23 trillion in early 2024, and it is on pace to surpass $24 trillion in the next year. Inflation has cooled down to about 3% over the past 2.5 years, which is slightly lower than the long-run 3.5% average the US has experienced in the post-World War II era since January 1948.
Employment figures also look great by historical standards. The unemployment rate has hovered around 4% over the 12 months through June 2025, or below the long-term average of 5.7% dating back to January 1948. Further, the US economy has continued to employ more and more people as it has grown. It employed nearly 160 million Americans (excluding volunteers, farmers, and those self-employed) at the end of June 2025—an all-time high….
There are two major lessons that investors can glean from that data. First, publicly traded corporations perform most of the heavy lifting. Investors benefit by getting exposure to the market and reducing, if not eliminating, anything that drags on performance.
The second lesson is remaining steadfast when the inevitable drawdowns occur. Charlie Munger, Warren Buffett’s late business partner, summarized it best:
“I think it’s in the nature of long-term shareholding with the normal vicissitudes in worldly outcomes and in markets that the long-term holder has his quoted value of his stock go down by say 50%. In fact, you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you are going to get…”
Munger spoke a harsh truth, but it’s one that all successful investors eventually make peace with. Shareholders are compensated for bearing risk. Some of those risks come from individual companies or market segments, while others are consequences of the economic cycle.”
https://www.morningstar.com/funds/big-secret-long-term-investment-success
++
I am aware of a few dark clouds. The full impact of tariffs is not yet known. AI will displace workers. We simply don’t know how many and which skills. For example, Microsoft is laying off about 4% of its workforce, about 9,000 people. Other large corporations will do the same. Housing remains a problem. The home price-to-income ratio has risen from 3.5 in 1985 to 5.0 in 2025. (Years of income to buy the typical home). However, a 30 year mortage is about 6.8% whereas in 1985 it was 12.4%.
I also know that the recent economic reality isn’t what some were hoping to hear. There are those who were convinced otherwise and are betting on disaster. Of course, if that occurs they will go down with the ship, too. The most perverse are actually wishing for disaster. But, for long-term, rational investors, things have been very good.
Yes, a market correction is coming and there will be a recession. You can bet on that. But, while waiting for the inevitable don't hold your breath and don't get ahead of your skis.
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