The agonizing process of building momentum from a bear market economy has initiated a number of trends that remind us that time can be either an ally or foe. Inconsistent in its nature, a market’s response from dire lows is not always a pleasure to watch.
On its surface, we have done a
remarkable job rescuing industries, building portfolio net worth, regaining
market momentum and consumer confidence.
The “tranquil” effects of these responses lets us forget the sheer panic
that led us to the brink earlier. The
less-sophisticated amongst us might be lulled into a false sense of security.
But systemically, and behind
the scenes, investor’s mood remains anything but calm. Traders and casual observers alike, notice
a “linearity” to the response, almost a “panic in reverse.” Some reject the market’s fortune altogether
as being value hunting and price responses to already low valuations.
While it’s obvious that one
shouldn’t “fight the tape,” the disparity between those who see a new
renaissance and those who simply see bargain hunting might set off a new
resistance to fundamental analysis or the deliverance of what they might
perceive as a “Trojan Horse.”
Hope and Hype.
It’s only because we’ve grown
so weary and suspicious of financial institutions that a new, more subtle panic
might be playing out right before our eyes.
No doubt market momentum
theorists, myself included, rejoice at whatever gifts the new renaissance might
deliver. It’s quite comforting to bank
those “real” profits and walk away. As
trends unfold we won’t digress from the mantra of our science that preaches
uptrends and downtrends, and the quantification of such. But that doesn’t mean we are blind to the
vagaries of the market’s new dynamic.
It’s not simply the absence
of retail investors in this rally that bothers me, it’s the staccato timeline
of buys and sells by institutions that makes this look more like a programmed
trading database than a basket of investors. The cornerstone of buy and hold
investors no longer exists, in part driven by the fear of the last bear
precipice. Breaking a long-standing
taboo, the playing field is littered with traders, speculators, and
technological “black boxes.”
Remember that amid all our
exuberance about the return of the “good old days,” financial institutions are
largely unchanged, unremorseful, and un-chagrined. Banks do what banks do: they attract clients, charge fees for
services, and make profits off those clients.
It’s not yet in their culture to “care” about the losses, only the net
margins. “Too big to fail” is
still in our lexicon.
Inherent flaw.
The idea that a market
recovery might wipe away the culture of greed is simply too idealistic, and
imposes upon the institutions an obligation to police themselves for our own
good. It remains to be seen whether the
recovery is real, but I can tell you that the apologies and remorse are
probably not. Contrition is to be found
nowhere in a bank’s charter.
The market collapse/response
is one in a series of generational lessons we learn, repeatedly. First we panic, then we reassess, then we
come back. Such is the cycle of
things. That’s why I like quantitative
market theory. Its mission is to measure
and evaluate those cycles so as to remove a panic when/if they occur. However, our appetite for pain and gain is
never-ending, its cost is deep.
With a rebound in motion, the
crisis over, what are we to believe about a systemic inequity that favors the
hierarchy of megalith over person? As
unpalatable as the game is, it’s the only one in town.
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