Doomer 2

Two days ago a friend emailed me in anguish. “Do you think the stock market is going to crash again? I’m getting that feeling. How can we be protected if it does?” Turns out he was sneaking into doomer web sites, where gold and silver pumpers scared the crap out of him.

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In fairness, you don’t need slimy sites like The Economic Collapse to render you impotent and slobbery. The TV news or a daily paper is more than enough. Greece. US debt. Wars. Disasters, Riots. Falling markets. It’s all there waiting for the dots to be connected.

Hell, you can even smell the napalm here. While I warn people away from borrowing to invest in a gasbag asset bound to fall in value, others use this pathetic site as a podium to preach mayhem. They tell you daily of a conspiracy to rig stock markets, a successful plot by the global elite to enslave you and how (a) Goldman Sachs, (b) banksters, (c) Jews, (d) liberals or (e) the Chinese will consolidate wealth and influence by stealing yours.

Some here praise guns and self-reliance. Others tell you to put 100% in precious metals in your garage (which is why you need guns). Many exhort you to hide in cash. And every time I write about assets you should consider – like bonds, REITs, preferreds or ETFs – the weeds come alive with those who equate them with perdition and bladder failure.

In fact, doomer is sexy. Dark’s the new black. It’s infectious and narcotic. But also misleading, debilitating and probably wrong. While I completely expect a real estate correction, ranging from the mild to the Biblical (depending on the economy and location) there’s no rerun of 2008 on the horizon – despite the risks and challenges. A housing crunch in Canada will not bring a financial collapse, as happened in the US. Greek default does not mean German banks keel over. Trillion-dollar US deficits will not cause hyper-inflation and a currency crisis. There are no FEMA camps being set up to pen millions of rioting Americans. Gold will not replace money. Jesus is not coming.

Let’s just talk stocks for a minute.

Equity markets are the most sensitive barometer we have of economic health, investor sentiment, trade, credit, liquidity and confidence. After rising 88% since the panic month of March 2009, US markets have now fallen about 7% and the TSX is off a dime. So does this mean they’ll lose another 40% or (as some people on this godforsaken site attest) 90% of their value?

Not if you believe stock prices are most influenced by corporate profits. The latest survey (Bloomberg) shows US companies expect to earn 18% more this year than in 2010 – which means stocks are cheap. How cheap at these levels? The lowest price-earnings ratio in 26 years.

Actually, if profit projections are right, the S&P 500 would, as Bloomberg reports, trade at 12.8 times income – the lowest level since 1985, save for the 100 days after Lehman collapsed in 2008, and the doomer cult was born. If this is true, then equity markets will likely rebound later in 2011, making those who buy the dip look like ballsy capitalist heroes.

But how can this be when the world is disintegrating, and nutbar sites like The Coming Depression keep soiling themselves in terrified anticipation?

Because by the time the doomers finish putting on their Depends and licking their gold bars each morning, markets have already assessed the risks of sovereign defaults, climate change, deficit financing and US real estate collapse. Crappy economic news has already been factored into current prices, along with the Japanese earthquake and bombing raids in Tripoli.

Markets are bolstered not only by government stimulus spending, but the conviction that the US economy will prove resilient, technology will advance, smart people will find new ways of making money and global fiscal and monetary policy will be coordinated as never before. Markets think a 2008 rerun is impossible. Now I agree.

Of course, idiot people who jumped giant houses with 5% down, buying at the top and borrowing at the bottom, could be wiped out here as they were Stateside. For them, depression. But not for the system. Every Canadian bank has a failsafe housing meltdown plan in place, not to mention a taxpayer backstop. You can’t stop stupid. But you can escape the splatter.

As for investors, nothing’s changed these past weeks, save one detail. You should still have a balanced portfolio with a fixed income anchor giving revenue and gains potential. You should avoid taxes with dividends and cap gains. You should reduce real estate exposure. You should have assets which are negatively correlated. You should avoid direct equity market risk and use exchange-traded funds. You should run from mutual fund fees. And if you don’t know how, find a smart person to help you.

Oh yeah, one more. Avoid the dipsticks. Buy the dips.