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By John De Goey, CFP, CIM
Special to Financial Independence Hub
The four words ‘this time its different’ were made famous by Sir John Templeton as an admonition against the overzealous embrace of new paradigms.
To him, there is nothing new under the sun regarding the interplay of valuations and emotions in the emergence of investing bulls and bears. The thing is, sometimes the world changes in such a fundamental way that there really are no antecedents.
For example, where is the precedent for having the gangster in the White House? As a thought exercise, imagine if Al Capone could have become President in the 1930s. Here’s a man who managed to avoid being brought to justice (sound familiar?), who ran his empire using violence and the threat of violence, and who, for a time, was wildly popular among those who knew him. He was petulant and reactive; not strategic and thoughtful (again, does that sound familiar?)
As of mid March, the U.S. has surrendered its status as a constitutional democracy, as the President has effectively put himself above the law by ignoring a court order. This is unprecedented. Nothing like it has ever happened before. It’s different. The United States is no longer a country of laws, it is a country of unbridled power for the person at the top. To paraphrase a recent article in Time magazine:
“… a court that cannot enforce its rulings is not a court – it is a suggestion box…. and a presidency that can ignore the courts without consequence is no longer constrained by law – it is an untouchable executive”.
No more wind in our sales from Bond Bull market
There are other things that are different in 2025, too. For starters, the world is dealing with an existential crisis – climate change – the likes of which has never been seen before. Then there are the challenges that, while not unprecedented in history, have not been encountered in our lifetimes. Debt levels, both private and public, are at their highest level since World War II. A bull market in bonds that lasted over 40 years ended a few years ago due to the normalization of rates coming out of COVID. There will be no more wind in our economic sails, as has been the case throughout the entirety of the investing lifetimes of everyone reading this.
The peace dividend has been paid out. Everywhere throughout the world, countries are rearming because of geopolitical instability that has arisen out of autocratic powers that seem determined to acquire new territory at all costs. Not only is this destabilizing geopolitically, it also diverts expenditure into military pursuits that would have otherwise gone toward expanding the economy and/or some element of improved social justice.
Deglobalization is very much part of this new reality, too. Tariff barriers are being erected by the gangster madman, and countries around the world feel they have no meaningful recourse other than to reciprocate in retaliation, thereby exacerbating the needless self-inflicted harm.
In fairness, the three main macro changes noted above – normalized interest rates, increased military expenditure with its associated geopolitical risk and deglobalization through tariff barriers – are all things that have happened in the past. The thing is, none of these developments have occurred in our investing lifetimes, so status quo bias and recency bias may have caused many complacent investors to fail to reflect upon how the world has materially changed. As the saying goes, those who are unaware of history are condemned to repeat it. The three macro changes of our time are not different. Climate change and the ascendancy of Donald Trump are. There is simply no precedent for either of them.
The models we use and the attitudes we bring to the problems of today need to be re-examined because they are based on paradigms that may no longer hold true. We simply cannot afford to go forward by fighting old wars and blithely assuming the future will look like the recent past. Financial historian and hedge fund manager Ray Dalio has shown that we frequently fall prey to the naive complacency that is associated with being unable to imagine a world that is materially different from the one we grew up in. To make matters worse, people throughout the western world have been cuddled by good fortune and essentially feel it is their birthright to experience an improved standard of living without material sacrifice.
Dangers of Complacency
Let’s use Donald Trump as an example of the dangers of complacency. In the 1930s, the Smoot-Hawley tariffs were used as a cudgel to try to improve the domestic economy. They backfired, and turned what might have been only a major recession into a painful and prolonged depression. No one wants to see that happen again, but history could very well repeat – only with the order of operations switched. Ninety-five years ago, a major downturn that had already started was exacerbated by tariffs. Today, tariffs may very well set off a major global downturn when there was no storm on the horizon.
When you have a convicted felon in charge of the largest economy on the planet who is mercurial, petulant, and utterly unconstrained by norms and the rule of law, you have a recipe for disaster. Speaking personally, I could not even imagine a world where a twice-impeached felon, adjudicated rapist, serial adulterer, stealer of state secrets, and leader of an insurrection that attempted to overthrow a free and fair election could even have his name on a ballot much less win. We are all limited by our imagination. The complacency needs to end immediately.
Traditional financial assets (especially stocks) are severely threatened. Trump’s personal volatility has already begotten substantial market volatility and we’re just getting started. In fact, we’re only two months into the Trump presidency – there are 46 months of near certain chaos yet to go. This leaves us in a unique situation. Behavioural coaching 101 would tell people to re-examine their asset mix, re-balance if necessary, and double down on their determination to stay the course.
Retirees should consider taking some Risk off the table
In the past few years, I have broken with this orthodoxy. To be clear, I agree with the theory. My skepticism is in the implementation. Human behaviour can be unpredictable. In fact, my experience going back to the global financial crisis of 2007 to 2009 is that when markets tumble, investors often lose their resolve. There is a saying that there are no atheists in foxholes. My experience is that there are also relatively few people who can follow through with the focus and discipline they purport to possess in times of severe and prolonged financial distress. If you’re young and working with a suitable asset mix, you should resolve now to stay the course come hell or high water. Conversely, if you’re retired or have even the slightest doubt about your personal resolve, it is imperative that you at least consider taking risk off the table immediately.
It looks as though stocks are about to endure the severe downturn. Meanwhile, other asset classes that are not exhibiting the same stretched valuations look like relatively safe harbours in the coming storm. These include real estate, metals, resources and bullion, infrastructure and alternative assets that offer a strong cash flow. As always, it is critical to diversify within and throughout asset classes. Above all, I ask you to employ critical thinking.
Optimism bias is the human tendency to look at things accurately from a macro perspective while simultaneously being incapable of imagining those widely recognized trends and outcomes applying personally. Statistically, over 40% of marriages end in divorce. Most people know this, yet you would be hard pressed to find even one newlywed who could imagine their marriage ending that way.
Do not conclude that ‘this time is different’ simply because I (or anyone else) said so … or continue to lead an unexamined life because you don’t want the statement to be true and refuse to contemplate the alternative. All I ask is that you seriously examine the evidence for yourself and act accordingly, if necessary. The major tariffs are set to go into effect on April 2.
John De Goey, CIM, CFP, FP Canada™ Fellow, is a Portfolio Manager with Toronto-based Designed Wealth Management. He is the author of three books on the financial industry: The Professional Financial Advisor, Standup to the Financial Services Industry and most recently, Bullshift. This blog is republished from John’s blog and is republished on Findependence Hub with permission. You can find John’s personal website here.
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