🤷‍♀️ This time is different

Hey hey, happy Monday!

The leaves are falling, the air is crisping up, the adult onesies are flying off the shelves. Ah, I love this season of change. And change, my friends, is what we’re learning to contextualize today. Yes, this time really is different. It always is.

Also! I was on Public.com’s Leading Indicator podcast with the wonderful Kyla Scanlon talking about my Oct. 7 newsletter on mortgage rates & the dire situation that is housing affordability. Listen in here.

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There are four words that strike fear into the heart of every Wall Street Brad, Chad and Thad.

“This time is different.”

Utter those four words, click your heels together five times, say a prayer to Jensen Huang and the ghost of Charlie Munger descends to smack you in the face with a rolled up Wall Street Journal.

Seriously, though. Wall Street has a lot of silly rules, and the stigma around saying “this time is different” is among the silliest.

This phrase is rooted in good intentions. Sir John Templeton – a brilliant investing mind and the namesake of Franklin Templeton – called it “the four most costly words in the annals of investing”, referencing investors’ tendencies to never learn from their mistakes. Humans are gonna human, so be aware of your humanity.

In today’s world of scarce context and social media clout, Templeton’s words have morphed into a modern-day investing joke. If you publicly question a long-held market belief or indicator, you’ll undoubtedly get a swarm of feedback about how thinking “this time is different” could lead to your inevitable demise.

Credit card debt just exceeded ONE TRILLION DOLLARS and you don’t think it’s a big deal?!? Remember the global financial crisis? This time is different, right? Good luck with that, they say as they roll their eyes and walk away.

In a Wall Street analyst’s mind, thinking “this time is different” often indicates you’re missing something. If a large number of people believe “this time is different,” then we may be collectively overconfident, ignoring important risks. That’s when bubbles burst and fortunes are lost.

Trust me, I get it. My day job is all about questioning common assumptions, so even I hesitate when those four costly words cross my mind.

But in my decade-ish of pulling data and poking holes, I’ve realized something important.

There’s a thin line between respecting history and ignoring its most significant feature: change.

We’re all quick to admit how much things have changed in our own lives these past few years. Why can’t we contextualize change on Wall Street like we do on our own street?

Wall Street’s favorite argument right now is how close the economy is to a recession. If you want my take, you can read it here.

It’s an important question, and analysts have relied on a handful of indicators for the answer. The shape of the bond market’s yield curve, the unemployment rate, the manufacturing sector, consumer confidence, the leading economic indicators index. We look at our data, and conclude that the economy is indeed weakening because a bunch of reliable lines that fell around past recessions are falling again.

Are those lines reliable, though? Think about this: the last non-pandemic recession started 17 years ago. Yes, in 2007, when MySpace was the dominant social network and you were fighting with your so-called best friend because she didn’t put you in her top 10. 

Obviously, a lot has changed in the past 17 years. Big tech companies took over the stock market, the iPhone nuked our attention spans, Taylor Swift went through most of her eras, and Amazon delivery opened up a world of consumption we never knew we needed. Your MySpace page is probably inactive, and if you’re like me, you probably don’t talk to most of your top 10 any more.

Now, imagine that change compounded over several decades. 

In 1960, Americans spent over half their money on goods – TVs, clothes, watches, jewelry. Now, their budget is 70% services – rent, haircuts, travel, streaming subscriptions. As a result, manufacturing jobs now make up just 8% of all employment, down from nearly 30% over the same period.

The American manufacturing sector is a shell of itself. Factories that once dotted city skylines are now breweries, boutiques and high-ceiling apartments.

So you may be shocked to hear that several of Wall Street’s favorite recession indicators are based on the manufacturing sector. This particular gauge – the ISM manufacturing index – shows that activity has been declining for almost two years.

In the past, manufacturing’s woes have been a clear warning sign of trouble ahead. Today, not so much, because…this time is different *gasp*.

People are spending more on experiences, and the decline in manufacturing hasn’t triggered a wave of job losses. The economy has held up, and you’ve missed a 40% rally in the S&P 500 if you sold your stocks when manufacturing plummeted.

Why do we struggle with change?

To me, it’s because Wall Street doesn’t do well in grey areas. After all, finance is portrayed to be about the numbers, even if most things in life aren’t just black and white.

Plus, sorting fact from fiction is hard work, and clear-cut rules can be alluringly simple.

But as an investor, you have to be able to live in the grey – constantly challenging your assumptions while remembering certain things will never change.

Or, you know, invest on a consistent schedule no matter the conditions.

Because over time, the haters are right. Some things never change.

Thanks for reading!

Callie

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