Many will remember the painful saga of Charlie Sheen’s battle with CBS that resulted in him being dropped from the hit TV series Two and a Half Men; a series that he basically made popular with his star power. While it can be argued, quite effectively, that his behavior off screen, and his handling of the “negotiations” were in large part responsible for the outcome, in the end, was Charlie ‘Winning?’
Throughout the very public battle, Charlie maintained a personal mantra, ending just about every blog or twitter post with the self-affirming tag line – Winning. Sheen also had a very public meltdown of sorts, making crazy statements about having tiger blood and Adonis DNA. Many in the press ridiculed him for this. But in the end, things turned out just fine for Charlie. He ended up with another hit TV series – Anger Management – and is making millions (again).
Is there a moral to this strange story? My takeaway is that the American public is very, very short-term minded. Also, they are very, very forgiving/forgetful/naive/shallow (add your own adjective here) when it comes to celebrities screwing-up. this characteristic spills-over into other aspects of American culture, the economy, and business, and it certainly affects the stock market.
People forget. Not only do they forget, they have a strong propensity to ignore or discount negative experiences. This is especially true for stock market crashes. If we add to this seemingly universal cultural trait for Americans, the fact that each new generation must learn their own painful lessons despite the best efforts of parents who try to caution their kids, we have a recipe for a never-ending series of bubbles and busts for stocks.
Every 20 years or so a new generation of investors comes of age. And, as with just about everything else in their lives, they think they know it all. No one, least of all their parents, can tell them anything. They have to experience everything for themselves. They have to make their own decisions, regardless of the negative consequences. As a result, the stock market will always experience boom and bust cycles, as we are living through currently.
In the end, Charlie Sheen was ‘winning.’ But unlike Charlie, we are not all celebrities benefiting from the short memories of the naive public. The rest of us have to pay for our mistakes. While this time it could be different, all reasonable people will acknowledge that the stock market cannot continue to go up forever. Earnings season for second quarter 2014 corporate results is underway. Economists universally believe that the -2.9% annualized GDP growth result in the first quarter was an anomaly based on bad weather keeping consumers indoors. If they are right, corporate revenues and earnings in the second quarter will have to accelerate dramatically to push GDP growth up to the 3%+ economists are predicting. So far results have not been impressive. The first reading on GDP growth will come in the next week or so. If corporate profits and GDP growth do not rebound it will be increasingly difficult for anyone to justify higher levels for stocks.