Quotes of the Day: “Not A Steady-State Market” — And — Whom To Listen To

Here’s Hedgeye Risk Management’s blunt CEO Keith McCullough (tops my very short list of analysts worth listening to) responding to a viewer on his morning macro show.

I paraphrase a bit:

“You notice when I sell something it continues to go higher, no duh (word replacement on my part), this is a bubble of a market. If it wasn’t a bubble it wouldn’t not go down, what you haven’t seen is a bear market.”

“You’ve realized that things keep going up in a market that doesn’t go down, yeah that’s what happens, but that’s not a steady-state market, that’s this current phase of the market, and when that changes, oh boy, you’re going to see that a lot of these know it alls know nothing at all.”

The above jibes with our message from yesterday:

“Under normal conditions — when stocks are reasonably valued, when general conditions are good, when company balance sheets are healthy, when credit spreads make sense, when corporate bond issuance is measured and covenants and rates make sense, when the Fed isn’t aggressively adding liquidity ($70 billion in repo last night!), when investors are acting rationally, etc. — you’d expect events such as those occurring today to bring the market notably and sustainably (for a bit) lower, while it consolidates gains, while investors reassess risk, and so on.

Given currently stretched valuations, stressed general conditions, highly-speculative credit issuance and consumption, and, nevertheless, the willingness of investors to aggressively buy every dip in equities, this feels eerily like bull market tops of the past.

If you’re thinking I respect McCullough’s opinion because maybe it agrees with ours, think again; I respect his work because it’s exceptional, and because he’s one of those rare analysts whose theses evolve right along with his view of general conditions. 

Here’s something I wrote recently on the topic, but hadn’t posted, till now:

When someone shares with me some pundit’s market prediction (be it higher or dire) — the predictor’s bravado [making market predictions] aside — I always recommend that they check out whether it’s the expert’s perennial position, or whether his/her opinion changes with conditions. If it’s the latter I say he/she’s worth listening to; the former’s opinion should be wholly disregarded as purely personal bias.

Here’s a timely quote from “Mastering the Market Cycle:”  

Emphasis mine…

“….rationalization for price appreciation that has taken place (and prediction of still more to come) invariably occurs at highs, not lows. For real help I’d look to commentators who issue sober statements in bullish times, or who argue against negativity when markets are down.

Here’s another: 

“….every investment trend eventually is overdone and bid up too far, so that the buyer in the end pays up for potential that is overrated. He ends up with capital punishment, not capital appreciation. “What the wise man does in the beginning, the fool does in the end” tells you 80% of what you have to know about market cycles and their impact.”

Last one:

“In the first stage of either a bull or bear market, most investors refrain (by definition) from joining in on the thing that only a tiny minority does. This may be because they lack the special insight that underlies that action; the ability to act before the case has been proved, and others have flocked to it (after which it’s no longer unappreciated and un-reflected in market prices); or the spine needed to take a different path than the herd and behave as a non-conforming contrarian.”


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