Ken Fisher Shares What You Need to Know About Market Corrections, Bitcoin and More

Transcript

Teaser of Ken Fisher comments:

But the reality is, most corrections are two, three, four, five, six months at the most. And they tend to go away real fast. And they tend to have a scary story that ends up proving to be not able to create a full-scale bear market.

Ken Fisher:

So, every month I get questions sent in to me and I'm 74 years old, so my eyesight's not that great. I write them up with big letters so I can read them. And then I read them to you and I do my best to answer them real quick.

So, one here is, since newly elected President Trump seems to look favorably on cryptocurrencies, does that change your outlook on Bitcoin? The answer is no. I don't need to give you a lot on this. I've been writing recently a fair amount about this topic. Bitcoin and other cryptos are inherently volatile. They've done spectacularly well since their introduction, but with extreme volatility. This included periods that were down, you know, peak to trough 80%. If you think you can time that kind of volatility, you don't need any advice from me about anything. But the fact of the matter is, my views are neither for nor against. Let me just give you a couple of them real quick. There's no industrial usage to any of the cryptos. Bitcoin itself has a limited supply. But crypto itself has no limit to its supply. And in the long term, one cryptocurrency-which, they're not really currencies, they're commodities-will compete against every other one. So, you're talking about a category that in the long term has unlimited supply. And they keep coming up with new ones, and they will.

Is President-elect Trump-probably by the time you read this, President Trump- a promoter of crypto? Yes, but let me just make the point to you that everybody knows that, and therefore, it's already priced into the marketplace. And presidents aren't kings. The regulatory status of that will be determined in the agencies and in Congress. And presidents aren't kings and I always say, and I will say again, this president, like every other president before him, will be able to get less done than some people hoped for and other people feared. That was my view before, that's my view now. I'm sticking with it, and I don't really need crypto to get me to where I need to go to, and I don't think you really need crypto to get you to where you need to go. But if you think you can time something as volatile as crypto has been, or Bitcoin has been, my hat's off to you, you know more about how to time sentiment than I do, because that's what it is, full stop. It shifts in sentiment and forecasting shifts in sentiment better than other people and good luck to you with that one.

Why did the market go up after the election? Well, I think that would depend on how you view it. I'm talking to you today in the early/middle of January and since the election, the market's down. But the market did go up initially and that was excitement that Trump would be pro-business, anti-regulatory, this would be great for stocks, he'd be growth promoting. And I think maybe there's just too much optimism there in the short term.

During a bull market, what's the longest time that a correction can last? There is- a correction is defined in the question as 10 to 20% drop- which is the way corrections are typically defined. And there's no real rule on that. But the definition of a correction is a short, sharp drop in the marketplace that typically goes away about as fast as it comes. You could argue-I don't wanna-you could argue that periods like the 2020 Covid crash, which went on for about three weeks, and then a sharp bounce back, was really kind of just an oversize correction rather than a bear market.

You can argue that 2022, where the market was down peak to trough at about 25%, at 10 months long, was a little too long to be a correction, and therefore, it's a bear market, it's over 20%; I mean, it's over 20%, that's fact. But the reality is, most corrections are two, three, four, five, six months at the most. And they tend to go away real fast. And they tend to have a scary story that ends up proving to be not able to create a full-scale bear market. And there's no absolute rule about exactly how long is the longest they can run.

I love this one. Whoever did this must be young. Some investment return calculators use a 10% average annual growth estimate today, higher than the 6 to 7% used 30 years ago. Do you expect average annual returns to increase in the future? I don't get it. Let me just go back to the question. Some investment return calculators use a 10% average annual growth estimate. today, higher than the 6 to 7% used 30 years ago. Hey, 30 years ago there were no investment return calculators. 30 years ago, you had calculators that allowed you to input whatever you wanted, but they didn't input for you. So, this notion that it was a 6 to 7% assumption-it was whatever assumption you wanted it to be. Now, to the other part of the question, I do not believe that there was any-30 years ago, I would have said normal returns in the stock market are about 10%, if you're talking about including inflation in them; if you're talking about inflation adjusted, then they'd be about 6 or 7%. I don't have a reason to have a long-term forecast of where the stock market goes; I've never had a long term forecast of where the stock market goes; I don't think there's a right way to have a long term forecast for where the stock market goes.

Which leads directly into the next question, which was why don't you try to forecast 5 to 10 years out? And the answer is, because there isn't a right way to do it. So, let me take you to this-over the course of the time of a year, the big shift in the stock market is always whether things work out better than had been expected or worse. It's always about what today's sentiment is compared to reality about 12 months out. Therefore, shifts in sentiment are terribly important. As I wrote about at some length in my Only Three Questions book, shifts in sentiment are really the equivalent of saying shifts in demand for the ownership of equity. Now, humans, being the way we are, individually and more so as a group, can only get so optimistic or pessimistic for so long before the emotion being away from our normal emotion begins to wear on us.

If you get in your normal person too depressed for too long, it's fatiguing; if you get too manic for too long, it's fatiguing. And then you tend to revert back to your normal sense of optimism or pessimism. And as a culture, we do the same thing, but within a tighter bandwidth, because we're all averaging out. So, sentiment can only swing so much one way or the other before it tends to mean revert. And that tends to happen over not terribly long time periods because we get worn out. There's a limit to how much sentiment can go up, and there's a limit to how much sentiment can go down. But with supply, there is no limit. We have no way to know, I don't believe, I've never seen anybody that knows how to forecast supply long term. Pricing is set by shifts in demand and supply, and in the long term, supply is more powerful in setting price than demand is, because in the long term, to create supply of securities is really the eagerness of vendors to create security, which just translates into pieces of paper and a little bit of regulatory. That's why it's so deadly.

Once people get excited about category X and they get excited about it too long, too much, wait a while and you'll see supply coming out of the woodwork, and it can keep coming out of the woodwork until it brings the price back down to normal. You can see that over and over and over again. Perfect example of that was the 1990s with Tech. You create the supply, eventually it brings the pricing back to normal. Is it too extreme over the process? Yes, sometimes it's way too extreme. Stocks are volatile, but the reality is, I don't know a way to forecast supply 10 years from now or five years from now. And people have been notorious. Do you think people are bad at forecasting a year out? You should see how bad they are at forecasting 10 years out.

Unless they just sit there and say, you know what, I'm going to forecast today and 10 years from now, come back and see if you can even find me. Where do you see the auto industry going? I don't have a have a bad joke about this-driving off the cliff. They're going to have a crash. I don't have a bad joke. Particularly different fuels versus EVs. I've said this before in relation to so many other things. For more reasons than I've actually got time to explain, we are not going to get away from fossil fuel, whether in cars or overall otherwise in my lifetime, and probably not in yours. The fact of the matter is, the laws of physics works against that. There's all kinds of other forms of energy, and some of them work just fine, but there's either political or cultural arguments against expanding them on a large basis.

Fundamental problem with a lot of them is they only exist today because of government subsidy. That's true of your electric vehicles. That's true- and mind you, you're going to need a need a lot more than that to increase the charging stations-that's true of wind, except for periodically-sometimes the wind works, sometimes it doesn't, you can't rely on wind all the time. Nuclear has got a lot of people upset about putting in nuclear stuff. What happens if you get a Chernobyl? And, I mean, we've had a culture that's had a part of the political culture biased against nuclear all of my life.

So, where do I see this going? First off, I think the auto industry is going to be largely fueled- California is an interesting example. You can't have, whatever it is after- I think it's 2035-you can't have anything but any gas-powered cars. Watch what happens in California when you get close to that. It'll go away. I mean, that will fold faster than, you know, a castle built out of a deck of cards. So, my view is I don't really see the auto industry going anywhere in relation to different levels of fuel, except for offering options to those that really want to pay a price for it. Thank you very much for listening to me. I hope you found this useful. I bet that was one a lot of you didn't want to hear, but it is true. And thank you and I hope you have a great month until I come back and answer grab bag questions again next month.

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