Welcome to Barton Bigg’s ‘Rosy Scenario’
“The ancient poet Philostratus said, “For the gods perceive things in the future, ordinary people things in the present, but the wise perceive things about to happen.”
– Barton Biggs, Hedgehogging
My favorite investment strategist of all time was Morgan Stanley’s Barton Biggs. Biggs used the phrase “Rosy Scenario” in the 1980s-2000s to describe his famous macro warnings and concerns that typically occurred late in a maturing Bull Market. In times like this, Biggs would detail the underlying and evolving risks that multiplied as investors’ narratives turned overly optimistic — convincing themselves that everything would work out perfectly in the future (despite the appearance of clouds overhead).
Importantly, he viewed Mr. Market as a manic depressive with huge mood swings. Investors, he surmised, should bet against him, not with him, especially when he is raving:
Barton Biggs was a cynical and wonderful wordsmith (his book “Hedgehogging” is a must read!).
According to Biggs, a “rosy scenario” is a market backdrop in which investors extrapolate non inflationary growth indefinitely, believing in a new paradigm of non-interrupted growth in which investors and policy makers assume perfect economic and market outcomes.
Biggs was particularly critical of overly ambitious company earnings forecasts (of an AI-kind?). He would often raise market concerns when the risk premia collapsed based on a growing consensus that “nothing bad can happen.”
In summary, if Barton Biggs were alive today, he might caution that the current bullish narratives have overwhelmed sober analysis.
Fast Forward to August, 2026
Biggs would likely (as I am) be worried about several legitimate headwinds that exist now, in the belief that Mr. Market has been resilient in the face of items that would normally have produced less robust or even negative investment returns:
- The lack of fiscal discipline in Washington, D.C. (on both sides of the political aisle), which has raised the U.S. annual deficit and overall debt load, which is being ignored by most investors.
- Improvisational (and potentially dangerous) policy from the current Administration.
- The rise in popularity of socialism (left wing of the Democratic party) and in nationalism/authoritarian rule (right wing of the Republican party).
- The likelihood that the A.I. capital spending spree (which has buoyed economic and corporate profit growth) will not produce an “adequate” return on invested capital.
- The equity risk premium (which, astonishingly, for the first time in nearly three decades), has morphed into an equity risk discount.
- RIsing interest rates that will likely stay higher for longer.
- Persistent inflation.
- Elevated valuations (with traditional metrics (like Shiller’s CAPE Ratio or Buffett’s Ratio (total equity capitalization divided by Global GDP) in the 98%-tile).
Well respected by many, no doubt (if he were still with us) Biggs’ concerns about “Rosy Scenario” would be seen in Barron’s “Up and Down Wall Street” column this Saturday (Aug. 8) – perhaps with the following warning:
“Warren Buffett, a man, like me, who believes in America and the Tooth Fairy, presents the dilemma best. It’s as though you are in business with a partner who has a bipolar personality. When your partner is deeply distressed, depressed, and in a dark mood and offers to sell his share of the business at a huge discount, you should buy it. When he is ebullient and optimistic and wants to buy your share from you at an exorbitant premium, you should oblige him. As usual, Buffett makes it sound easier than it is because measuring the level of intensity of the mood swings of your bipolar partner is far from an exact science.”
Positions: None.
