THE CURRENT STATE OF AFFAIRS
I find it odd that the news flow has turned into a fountain of bear semen slowly impregnating the minds of all those who are unfortunate enough to listen, while the market is sitting close to 4 year highs. Why is this odd?
Let's look at the market from the standpoint of the average mind. What I classify as the average mind are not seemingly naive retail investors who are easily fooled into either the latest greed driven fad or fear driven panic. The average mind also encompasses the institutional investor on Wall Street; be it a hedge fund manager, mutual fund manager, analyst or any of the other titles that are chosen.
I have personally consulted with numerous hedge fund managers and analysts over the years. There are very few who are qualified to go beyond the menial duty of creating a spreadsheet or PowerPoint presentation in order to create the image of brilliance that is - in all reality - completely hollow and vacant in nature. If you were to have the ability to peer into the mind of those that populate the Wall Street analyst and hedge fund community you would come to the swift conclusion that the only thing of substance is the hollow nature of the methods used to create an image in order to sustain the fleecing.
Back to the average mind. There are few investors who haven't been caught in the negative-euphoria of the current news flow. Whether it is the fear of a retrenchment in earnings. A slowdown in the general economy leading to increasing joblessness. The continued deterioration in Europe. Fear of an economic catastrophe in China. The flow of information at present does not allow one to rationalize a four year high in the Dow.
This comparison chart certainly doesn't seem to confirm the news. If anything, in the case of the Dow, it completely refutes the current news flow. It also is a clear indication that global capital now sees leading developed markets as the sole refuge. It is no coincidence, therefore, that the Dow and the Dax are top performers this year:
click chart to enlarge
Forgotten in the flood of information that is absorbed on a daily basis is one very simply truth: Bull markets do not end in the midst of news cycles that emanate a foul odor, allowing all those who are walking by to avoid soiling their shoes. Bull markets invariably come to an end during positive news cycles that create the necessary set of circumstances to allow the market to decline in as lubricated a means as possible.
The average mind be it retail or institutional has already sold or will be selling very soon. The average mind, it should also be noted, missed out on a good portion of the rally since the October lows, which I by the way bought hand over fist. This type of heavy cash position or proclivity towards selling at the first sign of trouble fails to cultivate the necessary lubrication to allow the market to slip into the twilight of a bear's anus. In fact, this type of dynamic creates a support mechanism beneath the market that creates the bottoms that lead to multi-week or multi-month rallies in the market.
My focus remains on absorbing as little day to day news as possible. I prefer to be completely ignorant of the information flow as rationalizing this information has never consistently made one person a single solitary dime. I continue to search for opportunities in individual small-cap names. As a safety precaution I have a set of mechanical trend following indicators that will move me into cash should the market continue to roll over. These two complimentary components are all that I need in order to be able to crush traditionally minded Wall Street investors of all creed, color and design.
The game is on.
