Those famous words, “This Time it’s Different,” always seems to pop up at financial markets tops and when bear markets begin. Why? Basically because intuitively market participants actually realize a market may be at a peak, or a bear market may have started, but cannot accept that reality. So in order to justify investment decisions (usually long positions), or change those decisions, rationalizing that it’s different this time again becomes a common mindset. Well, “Is This Time Really Different?” Kinda yes and kinda no.
So as financial markets (stocks, bonds, cryptos) all enter significant declines, confirming bear markets, are things really different this time? Yes, in the fact that all those sectors are declining in tandem. Very unusual. Yes, its different now because since the 2008-2009 financial crisis, global central banks (including our own Federal Reserve) embarked on unprecedented stimulus spending to cushion economic declines. Put another way, they all manipulated global financial markets on a massive scale. That’s different.
Once again, the Covid-19 pandemic with global lock downs wreaking havoc on economies surely qualifies as something different this time around. But what is really different is the amount of money that was injected into the economy to blunt the effects of the pandemic. Market participants became ever more convinced that governments, and central banks, would spend whatever to support economies (and financial markets). All this spending was truly unprecedented and certainly justified the thinking that “this time is different.” Remember the term “the Fed put?” It meant the Fed would not let markets decline significantly. Well, for sure this time its different; the Fed is not there.
So as financial markets go into free fall, just exactly what has NOT changed? Certainly the simplest and most basic thing that has not changed is human behavior. Or, specifically, market participants’ behavior. The belief that nothing can go wrong, or even if it looks like things might go wrong, this time will surely be different. Right?
What else is never different? Uncertainty. Things such as inflation, undisclosed (or unknown) leveraged investment strategies, geopolitical events, interest rates and of course many others have created an increased and unprecedented level of investment uncertainty. When financial markets ignore these uncertainties, the rationalization is always explained as “this time it’s different.” Currently, as mentioned above, financial markets have been “manipulated” for well over ten years masking ‘normal’ market behavior. Inflation was not only encouraged but fostered and stimulated. Interest rates were held at artificial “non-normal” (zero) levels. Risky investment positions were encouraged raising asset prices to other “non-normal” levels. Indeed, this time it is certainly different……but not in a good way.
So as financial markets struggle to attempt to grasp what is really ‘normal’ again, almost every asset class is entering bear market territory. Investment portfolios are being re-designed almost daily. Predictions on interest rates, when inflation will peak, where stocks finish the year and, most importantly, will there be a recession? Again, yes “this time its different” because there are more uncertainties then ever. However, there is one huge thing that always reminds us that this time is actually no different than any other time. Financial markets DO go down and bear markets DO exist.