Morning Note: One Thing That Never Changes

Yesterday I pointed to the dangerous level of giddiness presently displayed among the investment advisor crowd. Well, this morning the AAII’s weekly individual investor sentiment survey results were posted, and, well, investors are not heading my advice (I subtitled yesterday’s post “Never Party With Investment Advisors”).


Individual investor bullishness presently sits at a level not seen since the 1st week of 2018. And, frankly, that’s not comforting.

Calendar year 2018:

Note the 12% correction coming right off of that bullish reading, then of course the ~20% plunge in Q4.

Hey, but today all’s well, right? We’re coming out of COVID, economy’s opening up, rising stock prices make perfect sense, why shouldn’t investors and advisors be uber bullish?

Well, you’ve probably noted — amid all the mixed data we present herein — a hint of optimism of late from yours truly as well. I mean, in yesterday’s post, I did suggest that “smart money” shorts (betting on a fall) may find themselves in a bit of a pickle if they’re not careful. 

But, frankly, the economy reopening, the excess liquidity, the never-ending stimulus notwithstanding, beyond these drivers, there’s much under the surface that nevertheless suggests investors are, albeit unwittingly, driving on a pretty slick road.

We’ve pounded the underlying debt mess to death over the past year+ (and will continue to as long as it poses such an existential threat), but the fact that stock prices are discounting something so far removed from fundamental reality (and this could indeed go on for a long time to come) — short-term prospects notwithstanding — should have every thoughtful investor, at a minimum, diversifying (not just among stocks, mind you) their portfolios, if not actually hedging against potentially big downside risk — to the extent they know how.

@realjosephrich highlighted that last point nicely this morning:


Asian equities had a good night last night, with 13 of the 16 markets we track closing higher.

Europe’s leaning green as well this morning, with 12 of the 19 bourses we follow trading up so far.

U.S. major averages are mixed to start the day: Dow down 66 points (0.19%), SP500 up 0.14%, SP500 Equal Weight down 0.32%, Nasdaq 100 up 0.69%, Russell 2000 down 0.47%.

Oil futures are down 0.94%, gold’s up 1.06%, silver’s up 1.41%, copper futures are up 0.51% and the ag complex is up 0.63%.

The 10-year treasury is up (yield down) and the dollar is down 0.36%.

Led by MP (rare earth miners), gold miners, silver, ALB (lithium miner) and solar stocks — but dragged by oil services, AT&T, Verizon, energy and metals miners — our core mix is up 0.16% as I type.


If you were to ask me for a good book on financial markets, how they operate, yada yada, I would suggest you start, and, frankly, finish with Reminiscences of a Stock Operator. But I’d offer up an additional title as well; this one delves into the minds of people when they operate as a crowd: Charles Mackay’s classic Extraordinary Popular Delusions and the Madness of Crowds. Apropriate reading for the times we’re in:

“Money, again, has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper.”

By the way, The Madness of Crowds was published in 1841, Reminiscences in 1923. And while I’ve read dozens on top of dozens, on top of dozens, of works published between then and now over the past 36 years, I always come back to these as two of the most profound/impactful ever written. 

You see, markets are merely the reflections of human nature, and as you’ll discover if you read either or both of these books, at least when it comes to markets, human nature simply never changes…


Have a great day!
Marty

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