Legendary investor Sir John Templeton has a famous quote that still rings true:
“Bull markets are born in pessimism, grow on skepticism, mature on optimism, and die of euphoria.”
I have a new wrinkle. For today’s hyper-media-inundate-you-with-data-all-day-every-day era, somewhere between skepticism and optimism comes fatigue. And it’s bullish.
Stories have recently asked why CNBC’s ratings have tanked. In my view, you watch CNBC for two reasons:
1. You’re terrified of seeing what bad thing will happen to your investments next, but you can’t look away. Like a train wreck. (Hello, Financial crisis and Eurozone meltdown.)
2. You’re euphoric, and want to see how much your account will rise today. (Hello, tech boom, housing boom, etc.)
Investors aren’t any of these things right now. I think they’re just…fatigued. Fatigued of Middle East fears, Fed QE fears, of US debt/deficit fears, of Eurozone ills, of all of it. These things have been around for years now, and have lost much of their bluster power. Many aren’t so bullish, they’re just tired of spending so much energy worrying.
In my opinion, fatigue in this environment is bullish. It means there’s plenty of room for markets to rise and most still haven’t appreciated record earnings, and other meaningful positives out there.
Through most of the last decade, I answered an interminable number of investor questions about whether the weak dollar would destroy the very foundation of our world. (I exaggerate, if only slightly). Now that the dollar is showing some ballast, we get this: P&G to Apple Hurt by Strong Dollar Keep S&P 500 Profits in Check.
Look, I don’t care which way you fall but someone needs to cry foul when we perceive both a strong and weak dollar to be bad. In reality, we’ve had plenty of bull and bear markets in both strong and weak dollar environments, and in my view dollar direction doesn’t generally tell you much about what stocks are likely to do.
Currencies matter. A lot. But don’t get too far lost in this quagmire when it comes to judging the stock market.
If you’re like me, you get annoyed ubiquitously by the clichéd, overused, nonsense, nondescript lingo central bankers, central planners, politicians, and guru economists routinely employ. My current most peevish is “downside risk.” As in, “Currently downside risks for the economy are stronger than a month ago.” Or, “We see downside risk abating in the intermediate term.”
What does this mean? It means nothing. It’s gibberish. In the era where central bankers claim to be more open kimono, what they really are doing is just saying more words. The opacity is the same, as depicted by the current—and bizarre—speculation over “tapering” clogging today’s financial headlines.
When you see this stuff, don’t try to read tea leaves. Just ignore it until there is something concrete to form an opinion.
As a follow up to my previous post on housing supply, read Christopher Matthews latest Time Magazine Article: What Ever Happened to the Big, Bad “Shadow Inventory” of Homes?
Dash your expectations for a go-go housing expansion like last decade, but expect a steady recovery in US home prices and a modest GDP tailwind from residential construction. Here’s why:
Simply, the economy has worked through excess inventory created by the last downturn, and housing supply hasn’t seen these low levels basically since they started recording this sort of thing. This creates significant pressure to expand supply, and that’s been seen—in spades—in recent homebuilder sentiment indexes.
For those interested in forecasting (particularly for political outcomes) as a field of study, Philip Tetlock is a name you should know. Here’s an insightful interview: http://edge.org/conversation/win-at-forecasting. A few of my favorite quotes:
“I naively thought that pundits were in the business of accurately making forecasts” but really they are “flattering the prejudices of their base audience” and routinely “insulate themselves on vague verbiage…cushion themselves with rhetoric”.
Check out Guy Sorman’s latest article in City Journal: A Brief History of American Prosperity.
It will both soothe those fearing the demise of the US economy and inform of the dynamic American economic past.
As said on this blog way back in April: I’m Adopting “Grey Pigeons”
Why? Because the concept of black swans is one of the most overwrought notions in recent financial memory. Now the Economist is getting in the act:
Gray Swans: Why Frugal Firms Keep Piling Up Cash – The Economist
Mind you, they’re seeing gray for slightly different reasons, but the logic remains: black swans are black swans for their rarity. For the market to have all sorts of little shocks, ebbs, flows, and unexpected events is status quo.
Why be optimistic a deal can be struck on the fiscal cliff? Because there are weak links in the Congressional strongholds. Not only has the GOP shown some willingness to negotiate, but there are also a handful of Democratic senators up for re-election in two years, hailing from largely traditional GOP red zones, who will want to keep their jobs. Look for at least a few of them to show “temperance” and move to the middle on the Fiscal Cliff.
Red-State Senate Democrats May Be Hard to Corral on Cliff– Bloomberg Businessweek
If you’ve never read Leonard E. Read’s I, Pencil, it’s always a good time. A wonderful summation of free market principles, it’s also a document Milton Friedman referred to often. Here’s a parting lesson, straight from the pencil himself:
“The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.”