Being negative can be terrifying. Being negative can be lethal. Because, almost all of 2022 will be remembered as a year of disappointment and discouragement. Not for bears. Occasionally they were beaten – but for the most part, they had the run of the joint. Whenever you get too excited, too bullish, you get your arms ripped off by those damn bear claws, and not the kind they have at Dunkin’ Donuts. However, 2023 is already proving to be a different kind of year. Case in point: Mike Wilson, the genius of 2022, the strategist who was the most negative – and, therefore, the most righteous. He predicts another tough year ahead, although it is not really good with his target S & P 500 of 3,900. While the second lowest on Wall Street, it’s not far from 3,999. Wilson, who I don’t know personally, is looking for a particularly disappointing earnings season. Seven days ago, he predicted that the bank’s earnings, the kick-off, would upset the market by coming in well below expectations. In his winter of the “disconnect” scenario – everyone still wants to have fun with Shakespeare – he said that he believes that investors will be surprised by how dramatically the earnings will adjust. The Morgan Stanley strategist was right about the adjustment part, just in the wrong direction. All four big banks — JPMorgan ( JPM ), Bank of America ( BAC ), Wells Fargo ( WFC ) and Citigroup ( C ) — had their highest adjustments — and in some cases, like Wells, our most large holding in the Club. , rather dramatic. What happened? I think that banks can be a little microcosmic in that their revenues were much higher than expected, their expenses lower than expected and their balance sheets much more intact than expected. Their forecasts were mostly for a mild recession, but all saw bad loan prospects coming in much lower than pre-Covid pandemic levels. I have always thought that banks are indicative of the future of commerce. If the budgets are strong and the loans conservative, then many can be weathered, including fed funds – the key interest rate of the Federal Reserve – and unemployment of 5% and 5%. There are two takeaways here. The first is that Wilson was about as wrong as you can get on the major banks. Second, however, and more importantly, remaining negative after a brutal 13 months, with the technology still remaining from its perch of November 2021, can be dangerous for the health of the analyst. It does not recognize the high in long-term rates and advances in housing, industrial and even consumer stocks since then shows that an effort to deliver to project the S & P 500 could deliver to the dustbin of others who have been negative. I am reminded here of two of the great prognosticators of the 1980s, Elaine Garzarelli, strategist at Shearson Lehman and Robert Prechter, a disciple of Elliott Wave. Both were uncannily correct about the next Black Monday crash of 1987, with Garzarelli brilliantly accurate in a pivot from bull to ferocious bear just over a month before the crash. After that, we hang every word from the two. We all had the same words. Bearish words. They never changed. They squandered their visionary status to take nothing that changed for the positive and much did. I feel the same way now about Wilson and his ilk, who include the usual bunch of billionaires who have absolutely nothing to gain from being positive and everything to gain from being negative. Now, I agree that it is incredibly easy to be negative. As the ever-eloquent Larry Fink, co-founder and CEO of BlackRock, the world’s largest resource aggregator, put it in his conference call: “The challenges that society has experienced not only in the last year, but since the pandemic, they have eroded hope and reinforced pessimism in many parts of the world.” He goes on to say: “We have seen a decline in the birth rate and an increase in the elderly population, an increase in nationalism and populism and fear that we are entering a period of economic malaise.” The last word is usually pulled out only when you want to refer to the words of the former president Jimmy Carter, one of the leaders without knowing pessimists. The demonstration of Fink’s view could come as early as Thursday when cynics in Washington are dealing with the debt ceiling – once again revealing our rendezvous with nihilism and all its ramifications. If Wilson et. al. they are to be correct, they need the stock market to turn from Wall Street to Washington, obscuring what I think could be gains that could be more like the Big Four banks that the bear will admit. Staying negative is so easy. At my hedge fund, we dutifully call the Prechter hotline every week after the crash for words of wisdom. We would be incredibly cautious to be long so as not to have encountered Garzarelli in an interview or a television appearance. They were convincing long after a fund was formed. They obscured it well. As someone who was in money before the crash, I was very much in tune with them. I had no desire to give up my new visionary status, at least among the investor community, and I thought the only way to really destroy it would be to go positive. Fortunately, it took a few months to stabilize and rally without me for me to distance myself from those two essays. I never had enough positives though during 1988 and I missed some nice and easy earnings. I know there will be segments that I think will spark pessimism, particularly retail and technology. The first, trade, could go because people spend, as we know from the comment of the bankers. They just don’t spend to repair their houses or their wardrobes. They spend on travel and entertainment. Judging by the tiny decrease in credit balances, the money can only go to that winning class of spending. There is not enough for something new at home, save food. The second, much more problematic, could continue to decline due to a lack of belief in the companies that create such wonderful wealth, and for example, let’s include Tesla (TSLA) in the mix. The most popular stories of the era that ended in 2021 were the mega-caps and were defrocked in 2022 in a disgusting fashion. They will have their ups, but they will show a level of cyclicality similar to the old fit at Caterpillar (CAT) or General Motors (GM). The same goes for once-loved enterprise software and fintech. Fortunes were made in enterprise software and now fortunes are still being lost. The big banks have disrupted not only the earning power, but the actual being of fintech. Now the mega-caps, hostage to advertising, still have the ability to take billions in cost, but they seem reluctant, as their brilliance seems to have been put on hold by their corporate clients who are agitating. Mega-caps that need a strong consumer base could be stymied, too. What is more important, however, is the end of the market at two levels of mega-cap and just an old cap. It will not end up having a rally of hats to meet mega-cap. The carrier from 2022 could be the bearish shock that periodically raises the reputation of the bulls. The techs and fintechs plus Washington will cause the markets to flirt with negativity. It is not unlike 1987-1988 post-crash. There were moments when those who were negative were quickly vindicated and just as quickly by a demonstration. But this could be the year where technology takes its place in the bottle in the S & P 500 allowing other areas that showed nothing but strength from the bottom in October, especially industrial and financial. It is difficult to imagine that these two groups are the leaders in a slight recession, as it is difficult to imagine that technology and fintech are the laggards. However, this is what I see outlined as a possibility in 2023, something that seems impossible to reconcile outside of the gains themselves. So it can be, indeed, the winter of our disconnection. However, the disconnection could very well be not between bullishness and reality, but between bearishness and the future. (See here for a complete list of shares in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim talked about a stock on CNBC TV, wait 72 hours after issuing the trade alert before executing the trade. INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. NO FIDUCIARY OBLIGATIONS OR DUTIES EXIST, OR ARE CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION OBTAINED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
Traders work on the floor of the New York Stock Exchange (NYSE) on August 5, 2022 on Wall Street in New York City.
Angela Weiss | AFP | Getty Images
Being negative can be terrifying. Being negative can be lethal. Because, almost all of 2022 will be remembered as a year of disappointment and discouragement. Not for bears. Occasionally they were beaten – but for the most part, they had the run of the joint. Whenever you get too excited, too bullish, you get your arms ripped off by those damn bear claws, and not the kind they have at Dunkin’ Donuts.