My friend Doug Kass' bearish argument – and why I'm not convinced; Follow-up on my '12 Questions to Ask Before You Marry Someone'

1) As regular readers know, I've been optimistic about stocks and the economy overall...

In last Tuesday's e-mail, I shared a few data points about "possible froth in the markets." But as I concluded:

When I was running my hedge funds a decade ago, I would have looked at these factors, concluded that the market was in a bubble and ripe for a crash, and started selling my stocks and adding to my short positions – battening down the hatches for the looming storm.

But here's the thing...

Today, the skies are largely sunny (like they were 10 years ago).

Yes, there are times in which savvy investors should prepare for a crash – I very publicly identified two such times in early 2000 and early 2008 – but I don't think today is one of these times.

The economy is strong, unemployment is low, inflation looks beaten, and valuations – while high – are nowhere near bubble territory.

So my advice is: Ignore the ever-present naysayers... and if you own good stocks (or an index fund), sit tight.

Of course, I always like to present opposing viewpoints.

I've frequently shared insights from my friend Doug Kass of Seabreeze Partners. And in a recent missive, Doug outlined a bearish argument for stocks.

I always pay attention to what Doug has to say, and he has kindly given me permission to share his thoughts with my readers. Here's an excerpt:

Markets are making new highs, valuations have risen (without any real increase in 2024-5 earnings estimates for the S&P 500) and investor sentiment is ebullient based on the introduction and proliferation of artificial intelligence opportunities and the apparent notion that we are in the mid-cycle of an economic advance.

Like 2000 and 2007, a "soft landing" is now the consensus view. Those two prior periods ended poorly for the economy and for investors:

As of this week, the price/sales ratio of the S&P technology has surpassed the dot.com peak and has hit an all-time high:

Next, Doug shared these four bullet points to back up his bearish argument:

• Stacked or cumulative inflation will weigh on the U.S. consumer, especially the lower income segment.
• In part reflecting sticky inflation, interest rates will be higher for longer, squeezing overleveraged borrowers (especially commercial real estate).
• Yield curve inversions are not a signal to be ignored. Recessions occur only five months (on average) from a steepening after an inversion:

• Quantitative Tightening is about to kick in as the Treasury's Reverse Repurchase Agreement (reverse repo or RRP) drains to near zero.

And as he continued:

• Political and geopolitical headwinds are fierce and show no signs of abating.
• Our growing annual deficit and nation's debt load has not and will not likely be addressed by an unprecedented political partisanship.
• The unstable tribal mentality of the extremes on the political left and right (what Arthur Brooks calls the Dark Triad Paradigm) dominate our society: the loss of moderation spells more societal troubles.
• Valuations, based on historic measures, are almost all above the 90th percentile. Rarely do bull markets start from current price-to-earnings levels.

And then, Doug shared the following points:

• Equity prices have decoupled from interest rates – the equity risk premium is at a multi-decade low and the spread between the S&P 500 dividend yield and the yield on Treasuries has rarely been wider.
• The last four times the 10-year Treasury note yield minus the three-month Treasury bill inverted, it led to the 1990s recession, the dot.com bust, the global financial crisis and the 2020 recession:

• Investor sentiment is giddy and the Bull Market in Complacency is worrisome. The cover of Barron's this weekend and the Investors Intelligence survey are indicative of this:

Finally, he shared these two points:

• Like prior periods in history, a changing market structure – casino-like 0DTE (zero days until expiration) options trading, the proliferation of leveraged quantitative strategies and products, and a general dependence on price momentum (not value) as a short term voting machine – represent bona fide threats on possible market instability.
• The growth in passive investing is affecting market structure in ways the risk of which won't be fully understood until a sustained decline is seen. Its effect on upside momentum will [likely] pose an equal (or greater) and opposite risk on the downside:

2) As always, I appreciate Doug's insights and perspective. However, I'm not convinced by his advice to batten down the hatches and prepare for a nasty correction.

This is in part because, as I discussed last week, the macro environment is so strong. However, it's also because there have been a few times in my more-than-a-quarter-century investing career in which some smart person was also making similarly compelling-sounding arguments.

Consider what one of the most respected CEOs – Jamie Dimon of JPMorgan Chase (JPM) – and the founder of the largest hedge fund in the world – Bridgewater's Ray Dalio (who I think is a total bozo, for reasons summarized in my February 12 e-mail) – were saying in 2022 and 2023.

Here are the details from this recent Wall Street Journal article: Jamie Dimon and Ray Dalio Warned of an Economic Disaster That Never Came. What Now? Excerpt:

In mid-2022, JPMorgan Chief Executive Jamie Dimon warned that a "hurricane" was about to hit the U.S. economy.

It could be "a minor one or superstorm Sandy," Dimon said at a financial conference in New York. "You'd better brace yourself."

Last year, Bridgewater Associates founder Ray Dalio predicted a "debt crisis" after earlier anticipating a "perfect storm" of economic pain.

High-profile investors and economists including DoubleLine's Jeffrey Gundlach and Rosenberg Research's David Rosenberg were just as fearful, with Gundlach last March saying a recession would come "in a few months." Early last year, economists predicted a 61% chance of recession in 2023.

But as the WSJ continues, these experts were wrong:

They underestimated the impact of government stimulus and the resilience of consumers and businesses. And they were too skeptical of the Federal Reserve's ability to push inflation lower without sparking a recession.

The economy continues to grow at a steady clip. Inflation is getting closer to the Fed's goal of 2%, unemployment remains near a half-century low and the stock market is near record highs.

"I was bearish on the economy," Dalio said in an interview. "I got it wrong."

Said Dimon, also in an interview: "I would have thought some of the fiscal stimulus would have worn off by now."

So, to repeat, my advice is: Ignore the ever-present naysayers... and if you own good stocks (or an index fund), sit tight.

3) In my e-mail on Valentine's Day last month, I shared the advice from my book, The Art of Playing Defense, on my "12 Questions to Ask Before You Marry Someone."

Following up on that, I think there's a lot of truth in this recent New York Post article: NYC women's insanely high dating standards are screwing them over: expert. Excerpt:

Are the super successful, super fussy daters hurting themselves waiting for a perfect partner who may not even exist?

Dating expert Amber Soletti says yes – and no.

"I have met tons of singles through my dating events – both men and women – who have crazy expectations for their partner and I feel sad for a lot of them who are clearly feeling lonely and going to remain single forever," Soletti told the Post...

"When someone presents me with a list of 20 plus things they have to have, I ask them to try cutting it down to five to 10 things, and they then all of a sudden have so many more options," she says.

As the article continued, dating apps have also played a role in this:

Infamous 2009 research found women rate a massive 80% of men as unattractive or "below average," and Bumble and Hinge have only accelerated "the ick."

My answer (to both men and women looking for love) is also both yes and no...

Of course you should have high standards (especially if you're a catch yourself) – but in important areas, not irrelevant ones.

Every time I hear a woman say she's only interested in guys who are at least 6 feet tall, I want to scream: "You've just eliminated 85.5% of the pool! Are you telling me you couldn't possibly fall in love with anyone who's 5 foot, 11 inches tall (or 5 foot, 6 inches)?! Don't come crying to me if you never find a husband..."

Notice that in my "12 Questions to Ask Before You Marry Someone," there's nothing about someone's height, whether they're gorgeous to look at, or how much money they make.

Of course it's important to be physically attracted to your mate and it's fine to consider whether someone is likely to increase or reduce your financial security over time...

But it's 10 times more important whether they're a warm, kind, and good-hearted person, have high integrity, are a solid, stable, predictable person, are someone you like being friends with, and share your core values.

For more on this, I asked my professional matchmaker friends for their comments.

As Lisa Clampitt (from NYC, and who runs Lisa Clampitt Matchmaking) said:

Great article and there's so much to say about that. I was just talking to the YPO [Young Presidents Organization] group that I'm involved with yesterday about our interviews with more than 25 YPO women and their "nonnegotiable" standards – which are somewhat irrelevant if you ask me.

Women end up single for so long for no reason and then they get older and they don't have the same options they had when they were younger. There's this book by Lori Gottlieb called Marry Him: The Case for Settling for Mr. Good Enough. I was interviewed in that book and it's such an important message. Interviewing women in their 20s, 30s and 40s, the women in the 40s are really kicking themselves [for] not being more open at an earlier age. Anyway, so much to say!!!

And Shannon Lundgren (from the Bay Area, and who runs Shannon's Circle) agrees – as she said:

Ditto! So much to say. It applies to women in their 50s, 60s and 70s too.

I will say, in their defense, a lot of men could up their dating game.

PS – I disagree with the dating expert quoted in the article who said it's okay "If you're only attracted to men of a certain height or physique." Such silly advice. We all know you can fall in love with someone that you wouldn't have otherwise considered attractive on-paper. On a dating app there are no pheromones.

What is causing the feeling of attraction is just a thought in one's mind. It's judgment/bias based on past experience, and until you meet someone in-person, you don't know if you'll feel chemistry. We know men and women are guilty of these snap judgments just based on a photo.

As Lisa added:

The thing I would say that does make sense is to choose someone who has similar relationship goals. That is the main thing. Also, relationship people tend to say yes more and are more open to opportunities. If I were single again, I would say yes to anyone recommended to me and explore.

There is so much more than meets the eye and so many layers if you really get to know someone. Too much gets in the way when you are in your head and have a huge list.

And as Shannon also said:

I'd also add that entitlement is a real turn-off to men. "I demand XYZ from a mate" is a warning that this person is not ready to have a healthy relationship and is likely unaware of their own faults/blind spots. It sounds like a rude customer ordering off a restaurant menu.

One of my favorite quotes is from someone we both admire: "To get what you want, you have to deserve what you want." – Charlie Munger

You might enjoy my singles survey results. It's SF Bay Area based so not representative of all singles.

And finally, from Lisa:

Yes, the other word that is a huge problem is when someone says "I am not going to settle". What does that mean anyway? OR I am not desperate. If being open and relationship ready is desperate and settling, then there is a bigger problem here.

Thank you, Lisa and Shannon!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.