Who Is More Scared?
Feb 17 2012 - Mike Williams - Hot Topics
Good Morning.
First, we hope you have a nice and relaxing long weekend. Be safe and well.
Who Is More Scared?
Strangely, we have entered one of those twilight zone windows in time. Both bulls and bears are scared. The bulls are scared the rally may be ending, the bears are scared there is nothing but a cliff ahead. Talk about a contrary dream. Add the idea that the market has rallied, fund selling has continued and sentiment suggests investors feel good again and you get a mixed feeling.
The good news is everyone is nervous. The better news is that no new money has followed the "bullish sentiment" into the markets. People feeling better because the Q3 Q4 swoon of 2011 is being erased and their account statements look better does not a bullish crowd make. Money must follow for fuel to be expended.
This hints that indeed we may chop a little. We may even pull back (I hope so). Odds are increasing that the pullback will be shallow in nature, jerky for some but will evoke one of two feelings: a) it will not be deep enough to allow investors in and/or, b) it will immediately scare so many that they will not want to buy that dip after all.
Learning?
The world is finding a way to get beyond the idea that Greece is broke and has been for sometime. Could it be that all are beginning to understand what we mentioned many months ago here: Greece is a black swan that just won't hunt. For far too long, the world has feared the next event. After 12 years of it, one had to expect that the reaction factor has been fairly well learned.
As often stated here over the years, the markets are a cruel test agent for human emotion. There is an endless mind game at play for the crowd. Everything works sometimes. Everything also has a period where it does not work.
The goal of a good wealth building plan is to stay on course. It sounds relatively easy until we are wracked by the emotional charges entering our brains as each new scary headline screeches across the page. This has been the case for years and years. Unfortunately, thanks to technology, we have another interesting but somewhat embarrassing lesson to be learned: The more data the crowd has had access too, the more negative their wealth building results have become.
It is said in a joke that even a blind squirrel finds acorns. In like vein, the undoing of most investment goals and the disapointment many investors feel evolves directly from the emotional need to fix what appears to "not be working". It is an age old problem indeed - the constant media and marketing push drives too many to move from what "isn't working" to what "is working." This means nothing more than "I better sell something low and buy something high." After all, why else would we say something is working or not working?
Rest assured, these markets are teaching a new lesson. Sure, there will be a corrective wave. The sad part about it is that no matter the level from which it begins, here or hundreds of points higher, the act of red ink unfolding will drive fear back into the minds of the crowd. The numbing effect will drive them to sell and return ONLY "when things are more clear."
In all of these market evolutions, when one lesson has been learned by all and the obvious becomes clear to most, rest assured the teacher is prepping us all for a new lesson.
The New Lesson?
Maybe we have come to that point where the market is telling us the future is better than we think. Maybe we have seen the selling reach the highest levels. Sadly, net selling from mutual funds took place up to an including the month of January. It is too early to see if the same is true for February.
Our great friend and colleague Alan Steel reminds us that the GDP of the PIIG (leaving out the S for Spain) equals the GDP of Florida. Ouch. Apple has a larger market cap than the GDP of Greece. Eye opener huh? The strange comps can go on for quite a distance. All of them drive home one point: The world has dealt with defaults many times in history. Almost all of them had higher ratios of risk in the overall picture. Each one led to good lessons, and new debt the following day from new investors.
None of this will be read in the headlines. Good news does not sell. Destroying good news with bigger fears right around the corner sells lots of ad time.
The Better Lesson
We have had this lesson taught to us all an abnormally large number of times over the past 12 years:
Bad news brings red ink. Fear escalates and drives more red ink. Red ink creates value for the investor with the longer-term view. Value arrives in darkness, dressed in ugly clothes and boxed in by many hurdles. Things are not clear when the highest values exist. The perception of clarity is what brings the crowd back into the markets.
In English: higher prices = more clarity = less crowd fear = equals new money invested after being liquidated at lower prices = higher prices.
Rinse and repeat.
One more thing.....pray for a little red ink and choppiness. Heck, I'd like to see a few weeks of it.
When it comes, if it does, make sure we use same for building when most will quickly exit stage left.
More inside from additional data this week for review. Use your password.