Ken Fisher on Market Crashes, US Debt, Construction and More
Ken Fisher addresses investor questions about market crashes, government debt, construction indicators, and risk management. He argues that there's insufficient evidence to determine whether crashes are less likely today, that debt-to-GDP ratios tell us nothing meaningful, and that construction trends are not particularly important economic indicators.
Summary
In this mailbag segment, Ken Fisher tackles four investor questions. First, addressing whether 50% market crashes and recessions are less likely today and recover faster, Fisher argues there's no way to know this with certainty. While computerization and increased information access might help businesses respond to problems more quickly, it's equally possible this creates arrogance and greater risk. The lack of recent crashes and recessions makes it impossible to measure empirically.
On government debt exceeding GDP, Fisher dismisses this as a meaningful metric, stating that historical analysis of government debt and GDP ratios "doesn't tell us a darn thing." He acknowledges people fear large numbers and comparative growth rates, but argues the relationship between these two metrics provides no predictive or analytical value.
Regarding construction trends as economic indicators, Fisher rejects the claim that they're uniquely important despite connections to multiple subsectors. He uses a humorous example about cattle and movies to illustrate that many industries are interconnected, making construction no more special than other sectors. Since construction trends aren't great leading economic indicators, they don't warrant particular attention.
On risk assessment, Fisher provides a framework distinguishing between thinking and feeling. Taking too much risk means market volatility causes emotional reactions that change your investment approach. Taking too little risk means volatility doesn't prompt any reflection. The ideal position is where volatility makes you think rationally about your plan without emotionally reacting to short-term changes.
Key Insights
- Fisher argues that the relationship between government debt and GDP ratios provides no meaningful economic information regardless of the comparative values, despite people's natural fear of large numbers.
- Fisher contends that increased computerization and information access since the last recession may help businesses respond faster to problems, but could equally create investor arrogance and pose greater risks.
- Fisher asserts that construction trends are not great leading economic indicators and therefore do not warrant particular attention despite being connected to multiple subsectors.
- Fisher distinguishes between appropriate and inappropriate risk levels by whether market volatility triggers emotional decisions—too much risk if volatility makes you feel you should change strategy, too little if it doesn't make you think at all.
- Fisher states there is insufficient historical evidence to determine whether 50% market crashes and recessions are genuinely less likely in today's environment given the long period since the last business cycle recession.
Topics
Transcript
[0:00] The fact of the matter is, construction trends aren't really, in and of themselves, a great leading economic indicator. Since they're not a great leading economic indicator, it would be hard to say that it's particularly, uniquely important to be watching. Every month I get questions sent in to me and I get them typed up on these little papers so on my old septuagenarian, [0:33] feeble eyes can read the large print. And then I try to give you short answers, which is nearly impossible for me to answer anything quickly. I tend to be too ponderous, but I've got just a few here, so I'll rattle through them. The first one is, are 50% market crashes and…
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