The Real Horror Show Stock Market


history book

Greg Fields, Investment Advisor Representative
May 6, 2022


Dearest FoGs (Friends of Greg):

Dead man walking. That was the prognosis following British teacher Anthony Burgess' collapse in a Brunei classroom. The culprit? An inoperable tumor lodged in the frontal lobe of his brain. He was granted six months to live.

Burgess determined to leverage his last half-year on earth by fulfilling a lifelong dream of becoming an author. A farewell trip St. Petersburg inspired him to create a new language - a Russian/British mashup slang he dubbed Nadsat. This literary invention infused his first novel A Clockwork Orange with a distinctive flavor that elevated it into the ranks of great modern fiction.

Stanley Kubrick infamously wove Burgess’ work into a dystopian tour de force of cinema. Kubrick claimed it was the only book he ever adapted that needed zero rewriting. Burgess could now die a happy man.

Except he didn’t.

Despite a death sentence, partying like a rock star AND chain smoking, Burgess didn’t just survive to see his movie premiere, he lived another thirty-two years.

THE REAL HORROR SHOW


I offer this slice of literary history to highlight an important fact: things change.
Clockwork Orange's teen protagonist Alex appropriates the Russian word хорошо (read: kha-ra-SHO) meaning: "really cool", “dope", “sick" etc. In the book, Burgess phoneticizes this as “real horror show”. That’s probably an accurate description of how investors are feeling about the current stock market. 2022 has seen a veritable valuation beatdown super-charged by sky-high inflation, Chinese stagflation, and a hot war in Ukraine. When the market is this awful, investors (being a doom-y lot already) have a tendency to believe things can’t possibly improve.

But let’s remember: the term prognosis is a portmanteau (i.e., combination) of the two Greek words for “know” and “future”. But can anyone realistically know the future? Burgess’ doctor obviously didn't, even when armed with scientific evidence.

THE HOPE-Y CHANGE-Y THING


Past isn’t always prologue, but there are plenty of examples from market history that suggest a sweeter outlook ahead. Markets are volatile but tend to end up in the green during:

- mid-term election years
- the first year when the Fed starts raising interest rates
- ten to twelve months following the start of a war

Burgess’ title itself is also relevant to the current market. Alex rebels because he doesn’t want to become a Clockwork Orange: a docile shell of a human being stripped of their freedom by automation and a drudging daily work schedule. Modern automated trading algorithms (Clockwork) tend to exacerbate human panic selling (Orange) which then intensifies market volatility. A perfect example: Netflix’s recent underwhelming quarterly report and subsequent market meltdown triggered a sell-off of all technology stocks; even the ones with excellent earnings. Understanding this dynamic doesn’t make it any less painful for investors, but does explain the extreme, pendular swings when the market is attempting to digest uncertainty.

CLOCKWORK ORANGE IS THE NEW BLACK


But there is one feature underlying the 2022 market more indicative than any other. Alex and his “droogs” or gang, resort to assault and robbery because there is no work, no education and frankly, no hope, for him and his friends. They are cogwheels in a system that will inevitably limousine them right into prison.

Our current economy looks nothing like Alex’s bleak existential world. The US is near full employment. People are getting out and eager to spend cash after hoarding it for two years. Covid deprivation has forced businesses to become creative with resources and significantly more efficient. Inflation is high but its growth looks to be slowing. Corporate earnings are strong. Nearly 80% of companies surpassed Q2 projections and 65% have raised future guidance. And spoiler alert: Russia is going to lose.

Point is, that predictions cut both ways. A negative prognosis is not necessarily more accurate than a positive one. So it’s just as logical, more pleasant (and likely healthier) to lean into optimism. Even when staring down grim circumstances. Then the only unknown becomes: how large is the reward on the other side of adversity for those who stay invested? For Anthony Burgess, the reward was “real horror show” indeed.