Urban Dictionary defines a "Studio Gangster" as follows:
Fake G's that pretend to be from the streets by rapping about it.
Much like studio gangsters who are seemingly a thorn in the side of the hip-hop community, there dwells a large band of studio-analysts on Wall Street who will pretend to be bulls or bears by rapping about it, although their raps don't rhyme. They pretend because they simply have no choice. A fervent lust for competent analysis doesn't reside within these individuals, creating a mutant form of trend-follower who will simply hop on the path of least resistance, curve-fitting their analysis to meet the circumstances they are presented with.
Just a couple short years ago that the voracity of the bull market was in constant doubt. Numerous reasons were being cited. The same reasons that pop up today at the first sign of trouble: job growth, corporate earnings, inflation, deflation, interest rates, EM concerns, Chinese real estate, fiscal policy, monetary policy, oil prices, Middle Eastern instability, overvaluation. You get the picture.
There were very few, if any, who base their reasoning in the devoid and depraved landscape of fundamental, macro analysis that were calling for such levels in the major market averages. Now that fundamental events that worried these studio-analysts to the point of absurdity have vanished into the portion of the heavens that is a loving home for all forms of degraded analysis, the same crowd has reformed themselves into a nouveau bullish class of investor who is patting the back of the market, asking for whatever validation they can get before the tides shift, once again.
The problem here is not that these investors signal any kind of long-term top for the markets. They certainly do not. The financial markets can make large groups who are otherwise dull, shine bright. Likewise, they can make those who are bright, look extremely dull.
The type of anecdotal sentiment analysis that relies on the bullishness of mailmen and taxi drivers to call bull market tops is just as flawed as the fundamental, macro analysis that drives your typical studio-analyst. Trends persist for far longer than even the most brilliant investor can imagine and they can create realities in price that are far beyond any logical explanation that can be offered at any moment along that path.
What these studio-analysts signify is that a degree of comfort has been created in this bull market that hasn't existed over the past several years. This type of comfort can create downside pressure that can be both sudden and surprising in scope when it does come due to a lack of available bidders in the market, as short-sellers have vacated the premises and doubters who are looking for a dip to buy, have already done their buying. I would expect such a surprising and sudden move to take place before the end of Q3. Even if I am incorrect in the timing of the move, this type of comfort does signify a moment to take pause.
It doesn't mean that an investor should move to a majority cash position. This is a strong bull market that likely has many years left in its tank. It does, however, mean that momentum names that have the potential to injure and maim the careless should be approached with caution. Excessive exposure should be pared back. Cash should be preserved for better opportunities that will come. Value names that are off the run (similar to our micro/small cap portfolio) shouldn't be greatly affected. Growth certainly will.
In other words, guard your grill.
