I only took a week off, but it seems like so much has happened. I observed, but I did not write, and now I must decide where to rejoin the fray. Some of the market worries I had been talking about seem to have gained traction.
For several years there has been a growing disparity between long-term value investors who have climbed the wall of worry and those emphasizing transient headline news. I was a leader in identifying this viewpoint in 2010 with my Dow 20K call, when many were saying Dow 5000.
When will it end? This is the most hated rally in history, partly because so many have made two basic mistakes:
- Attributing all of the market gains to the Fed instead of considering the economy and corporate earnings.
- Substituting their political opinions for investment judgement.
During my week off I obviously followed the markets and some of the commentary. There are plenty of worries, most of which I have discussed in past posts. Before diving into the newly updated (and not too worrisome) wall of worry, I want to highlight a dramatic sentiment indicator.
Hot Money Skepticism
Jan Hatzius is a top-flight economist, leader of the Goldman Sachs (NYSE:GS) team and highlighted by many sources as the very best during the last financial crisis. He is neither a perma-bull nor a perma-bear. He deserves our respect. I do not always agree, but I do always listen. He appeared on CNBC explaining that GDP data underestimated the actual results. Those of us who are interested in data listened carefully as he explained how improvements in software and technology were under-estimated in GDP figures. It was a careful, persuasive and measured statement, and part of a generally bullish economic outlook.
The CNBC interviewer asked in amazement whether he really believed the official GDP figures underestimated growth. Hatzius said “yes.”
And the NYSE traders booed. Loudly.
That reaction is the point of this post. Keep it in mind as you interpret the market reaction to economic data. Those who are trading every day have a strong negative predisposition. If you want to compete with them in short-term trading, you must keep this in mind.
For those of us who are long-term value investors, we have an opportunity to exploit any biases and blind spots.
More to come on the latest worries…
Stocks to Buy?
Still technology, regional banks and cyclical names. These are all very cheap on long-term growth metrics and will benefit in a stronger economy, rising rate environment.