Market Participants agree on the facts but disagree on the interpretation. Period.
Mentally, it has been a challenge to marry a market challenging all-time highs against a backdrop of weaker earnings, falling profits, surging unemployment, and a recessionary economy. But, again “BAILOUTS PROGRAMS” are as permanent as death and taxes.
Markets always revert to the mean. But they also stay irrational far longer than you can stay solvent. This is especially true when central banks around the world pump trillions into the markets to keep them from collapsing.
This currently where we are in the markets today.
“Greed” Verses “Fear”:
As “greed” overtakes “fear,” investors become more emboldened as rising markets reinforce the conviction that “this time is different.” Ultimately, when the negative consequence eventually occurs, instead of taking responsibility for their actions, they blame the media, Wall Street, or their advisor.
As markets rise, investors take on exceedingly more risk with the full knowledge that such actions will have a negative consequence. However, that “negative consequence” is dismissed by the “fear of missing out,” or rather F.O.M.O.
Greed takes time to develop. Fear develops suddenly and with little notice.
Never forget Bill Blain’s Market Mantra No 1: “The Market has but one objective; to inflict the maximum amount of pain on the maximum number of participants.”
“Things are never as bad as you fear, but never as good as you hope:”
Markets are inter-subjective frameworks and that they are driven by narratives. As long as people believe that the dominant narrative is true, extreme valuations may remain a reality. But if doubts arise, then the whole house of cards is likely to collapse, especially as economic fundamentals do not support current levels.
Narratives are never a 100% true. If they were, we would call them reality, not narratives.
Sometimes, when you don’t know what to do, the best thing to do is not play.
“‘Willful blindness’ is most prevalent in the financial markets. Investors regularly dismiss the ‘facts’ which run contrary to their current opinion.
Event‐driven “OR” Value‐oriented… Which approach is best ?
Eugene Fama, Economist: According to his Efficient Market Theory, competition among investors is so intense that all information and expectations are immediately and correctly priced in. Therefore, it’s impossible to beat the market in the long-term.
In 1932 the gold price was $20.67 dollars per troy ounce, recently crossed $2,067 dollars.
China, now, has more companies in the fortune 500 than the USA itself.
Value proves “EVENT” wrong all the time.
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