Editor's Note: Todd posts his vibes in real time each day on
Buzz & Banter
Hi, welcome to the future. San Dimas, California, 2688. And I'm
telling you it's great here. The air is clean, the water's clean,
even the dirt, it's clean. Equity averages are way up, mini-golf
scores are way down. The last 20 Tuesdays have seen positive
action, and the Dow Jones Industrial Average hasn't suffered a
three-day decline in 113 years! I'm telling you this place is
Bill & Ted's Excellent Adventure
I took some liberties on Rufus' speech -- let's call it poetic
license -- but it sorta sums up the state of market psychology.
I wrote a few weeks ago, in
The Most-Hated Rally of All Time
, that "in my 23 years of trading equities, I don't believe I've
ever witnessed this degree of directional certitude before." I also
shared that the upside is now
as obvious as the downside was in March 2009.
We were early to the bull camp back then -- about a month, which
was 15% of real downside pain -- before the market embarked on what
has morphed into a 150% price rise fueled by the central bank
sanctioned steroidal needles.
I'm not one to make excuses -- never been my style and it's one of
my pet peeves, along with arrogance, loud chewers and long lines --
and I won't make one now. I had a total right hip replacement
one month ago tomorrow
and it's been a long haul (
complete with scary falls
). I attempted to work
the surgery and recovery, to a fault. I wasn't as lucid as I
otherwise might have been and I'm reminded of that every time I
look at the YTD performance in my trading account. I own that; it
was a mistake that has since morphed into a lesson.
I won't go as far as to say "I'm back," because the last few times
I did that it proved to be premature. I will say that I am off the
pain meds (slightly ahead of schedule), I begin outpatient PT today
(should be fun) and I'm expecting to ease back into Minyanville
headquarters a few times next week, in front of my meeting with the
surgeon the following week, where we hope and expect to get the
"all-clear" (to commute, not run marathons). In other words, it
feels like I'm over the hump, both in terms of pain, recovery, and
the ability to think clearly.
In terms of the tape, I shared some thoughts yesterday on the Buzz
& Banter (click
for a free trial!) that bear repeating, as they sum up my current
frame of mind as it pertains to the stock market. The thoughts were
triggered after I read an interesting article on Bloomberg,
Record Cash Sent to Balanced Funds Amid Stock
Of particular note was a quote from Michael Holland, chairman of
Holland & Co, which oversees about $4 billion. "It shows the
early stages of the healing process and reduction in the still
pervasive negative psychology about the stock market." He
continued, "We're four years into a bull market and levels of stock
ownership remain very, very low."
Therein lies the rub, right? On one hand, we're in the "
early stages of the healing process
" despite the fact that
we're four full years into the rally.
And again, I believe an asterisk is appropriate when discussing
this particular rally, much like one was needed when Roger Maris
hit his 61st* home run. The game has changed and it's not "fair" to
those who played with different rules earlier in their careers.
(INDEXSP:.INX), as discussed, is now 150% higher than it was in
March 2009 -- four years ago -- when the government endeavored upon
the single biggest experiment in financial market
. To be sure,
after a decade of bubbles and busts
, one that repeatedly screwed savers at the bottom and punished
investors at the top, one could understand if John Q Public opted
-- or continues to opt -- to sit this one out, recent data
Burn me once, shame on you; burn me over and over and over again in
tech stocks, real estate, crude, China, and now the widely
perceived central bank call option and, well,
Arnold Diaz would have a field day.
But there are two sides to every trade, and even the most fervent
bears -- those chanting "cumulative" and "disconnect" and
"synthetic" -- would be wise to know what their counterparties are
What if -- and I'm just putting this out there --
after gobbling up trillions of dollar in bonds, the government
simply held those assets to maturity and subsequently wrote them
off, much like
) did during the go-go days after Y2K, when they wrote millions of
out-of-the-money puts in lieu of buying back stock (when the
premium expired worthless, there were tax advantages; when they
finally didn't -- after the tech crash -- there were write-offs
galore, and that was that).
I have unsuccessfully attempted to trade around a short bias --
should we take out last week's highs, I will euthanize those
S&P puts -- so this is nothing more than me trying to make
sense of the current price action. "Don't fight the Fed," and "it's
different this time," is more rationalization than reason in my
book, but price is the ultimate arbiter of variant financial views
so I respect -- but will not defer to -- the bull. He has been
partying like it's 2003, sucking down the Kool-Aid and not worrying
about the "other side."
I will say this, however: If four years is indeed "the early stages
of the healing process," I sincerely hope that the recovery
eventually shifts from the stock market to the economy and finally
the most important dynamic, in my view,
as from where I sit, there is a pretty massive chasm between what
the markets are telling us about the state of the world and what
the world is telling us about the state of ourselves.
Make decisions for yourselves, for you will bear the consequences,
and look forward, not backward, for that is where profitability
Good luck today.