- J.P. Morgan Asset Management Chairman of Market and Investment Strategy Michael Cembalest has criticized the “Armageddonists” for causing recessions
J.P. Morgan Asset Management Chairman of Market and Investment Strategy Michael Cembalest pointed out that bearish markets and recessions are largely driven by the negative commentary of market watchers and industry experts. In a note to clients, Cembalest specifically called out Carl Icahn, David Levy, Peter Schiff, Jeff Gundlach, Nouriel Roubini, George Soros, and Paul Krugman specifically as individuals who drive bearish markets.
“While recessions and bear markets are a fact of life, something peculiar happened after the Global Financial Crisis: the rise of the Armageddonists, which refers to the market-watchers, forecasters and money managers whose apocalyptic comments spread like wildfire in print and online financial news,” said Cembalest in the note via Markets Insider.
Cembalest’s team had measured the impact on an investor deciding to shift a dollar from equities to diversified government, mortgage-backed, and corporate bonds. The chart — which was based on shifting $1 from the S&P 500 to the Barclay’s Aggregate Bond Index — trended downward — which resulted in opportunity loss for investors who reacted to the comments from the financial pundits.
Cembalest pointed out that the “Armageddonists” will be rewarded one day with a recession. However, the “next recession and bear market will have to be quite severe to earn back what was sacrificed along the way.” Based on rough math, a sustained multi-year bear market with 35% to 45% from peak levels would have to reverse many of the opportunity losses that were shown in the chart.
Another point worth mentioning is that Cembalest believes the next bear market would not be as damaging as the recessions in 2001 and 2008. He pointed out that this was due to “higher levels of capital and decreased funding risks in US and European banks, stronger balance sheet fundamentals of US households, reduced risk in most Emerging Markets due to higher levels of foreign exchange reserves and less reliance on foreign capital, and the low level of new US equity supply since buybacks and M&A have exceeded new equity issuance for the last five years.”
Cembalest oversees $1.8 trillion in assets under management. And he is responsible for leading the strategic market and investment insights at JPMorgan’s Institutional, Funds, and Private Banking businesses.
