Sometimes in markets, the inexplicable swirls in and swoops up a timeframe. It’s flung into the clouds for a while and then plopped into some remote farm field—unable to explain how it got there or why.
This is similar to events of the last 13 months, including: Brexit, the US presidential election, European politics (e.g., Netherlands, France, Italy), not to mention Iran, Syria, North Korea, etc. These time periods are rarely matching in size, strength, or pretext, yet each is marked by a sudden burst of blazing, searing market action that cannot forever be sustained.
As I ponder the 2017 stock market returns—Dow Jones (^DJI, DIA) 11.79%, S&P 500 (^GSPC, SPY) 10.63%, Nasdaq 100 (^NDX, QQQ) 17.99%—media experts are busy scribbling, retrofitting their ancient, hand-me-down, correction calls, predicated upon another spurious correlation or vague theory about central bank tightening liquidity, crowded super-tech equity positioning, a low-lying VIX index (^VIX, VXX), a flattish yield curve, a negative CESI, etc.
As these correction calls are recycled—growing only longer, older and louder—I take notice of a financial media expert complex awash with facts without much value and a market of values which seem to have no basis in fact. And there is nothing more debilitating than listening to those who do not have the faintest idea about risk incurred yet think they have a precise idea of them.
Think about it: How can it be that despite a stubbornly saturated oil market, dissolving political pledges, and cooling US growth momentum that the stock market is half-way through the dog days of summer with some outsized moves including a 17.99% rise in the Nasdaq 100 and 10.63% in the S&P 500? Need more proof? How is it that the stock market climbed higher and higher through the shaky emerging market global conditions of 2011-2013 and the commodity rout of 2014-2015, all of which occurred without any US nominal growth to speak of?
Market reality vs. market fantasy
I’ve come to the conclusion that, more than ever, we investors are drawn to misleading pseudo-pictures of the market, relying on one-sided accounts of cheap talking theorists, who focus on what the market should be saying rather than perhaps what a market move means. Today, more than ever, sound investing consists of ignoring things that are irrelevant—false patterns, false signals, false news—with all of their complexities and textual variants, as they do nothing but produce a phony sense that markets are sensible or somehow knowable.
Realize it’s difficult to prove a vague theory wrong. Given that the process of calculating the outcome is indefinite, with a little imagination, any experimental result can be made to look like the expected results. Yet, dodging these will help reduce the various ill-gotten, side-effects brought on by sensational news and the fear-mongers who exist only to sell it to you. They, who embrace theory over practice, abstract ideas over concrete action, and good intentions over consequence to you and your portfolio.
Few things in the market, or in life, should be compartmentalized. An understanding of one area, one topic—even one that seems obscure—may lead to discovery in another. Low yields, a weak supply of US dollars, a flat treasury yield curve, high debt levels, technology and the declining return on humans, etc. Everything is connected, and the trick is to find those points of interaction.
In the meantime, embrace the fact that markets are indeed shapeless and unknowable. The best we can do is extrapolate the whole pattern of something from the part of it we know, in order to have some assurance about the part still hidden.