Lots of cross-currents in the markets right now. There is a mismatch between short-term concern and long-term investment horizon. This is different than prior peak market periods where fully invested was the preached plan and what was executed. Maybe we are seeing shift because more have seen how many years it takes to get back to even. The wealthy are 34% in cash , which is different than for general US investors who are pretty fully in the market right now and have very little cash on the sidelines. This is typical at tops.
It makes me wonder (again) about the fact that there is a vast amount of money sloshing around – how will this affect stock markets as the economies around the globe continue to decline? Will all that money be a cushion to a decline? Will it exasperate a decline? We already know that it is causing short-term shifts from asset class, sector and geography – growth-chasing. How will the robots affect the game? – they were not a factor in prior cycles. We humans tend to think that the future will be like the past, and most people remember best the 2008 rapid crash. Thus, most investors are bracing for a Lehman moment. This time it could be a slow squeeze (as one author suggested). People are not prepared for a multi-year negative period as we have seen before (2000’s, 1970’s).
I’ve heard guests on the financial shows say that there is no irrational exuberance, so we can’t be near a top. I wonder if we really need exuberance. The key word in our former FED Chair’s phrase is irrational, as in throwing money at business stories that don’t have a solid financial footing. We have been seeing this for some time by private investors in Unicorns. We are seeing it in investors chasing yields into higher and higher risk investments. It is being fueled by the industry with games like beating expectations instead of reporting that the company’s earnings were down and the analysts’ guesses were wrong, and by reporting operating earnings instead of real accounting profits, and by holding the forecasts for future quarters high when current quarter and government projections of near quarter growth is substantially lower. Here’s an interesting thought – we all know now that the bad investor behavior in the last cycle was fueled by what was essentially mortgage industry fraud and aggressively selling very high risk products to consumers and investors – is this happening again by the banks to push investment products that are much riskier than investors realize?