Limits.
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.
Scotty C. George
(212) 624-1147
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