We start off Sunday with the traditional anecdote from One River's Eric Peters
“Humans sell low and buy high,” said Yoda, high in the Rockies. “And in those moments they believe it’s for good reason. It cannot be otherwise.” Snow fell, rain too. Spring on its way.
“Bear markets end when every piece of news is seen as an excuse to sell. And bull markets peak when the opposite is true.” Somewhere in the clouds Nasdaq futures were breaching all-time highs, defying the latest Twitter tempest.
“The longer a market trends lower, or higher, the more confident people become that tomorrow will look like today.” He turned his palms upward, heavy flakes landing, melting. “And what they forget is that the single most important consideration in investing is your starting point.”
The trail led higher, and Yoda knowing his way, felt the summit nearing. “In bear markets, prices are low, economies are in crisis, policies are in flux, and these things in combination create the starting point for enduring recoveries.” In bull markets, of course, the opposite holds. “It is often easy to lose track of where you are. But eight years into an uninterrupted economic recovery and historic bull market, you must not forget how far we’ve climbed.”
In March of 2009, the S&P 500 traded 666, and is now 240% higher. Unemployment was 8.3%, it’s now 4.7%. Overnight interest rates were 0.00%, they’re now 0.75%. 10yr bond yields were 2.88%, they’re now 2.40%. Household net worth was $55trln, it’s now over $93trln.
“You must remember that at cycle highs a new narrative always captures investor imaginations. It is never something that was evident at the lows, or during the heart of the climb. It always appears near the highs, as if it had always been there for everyone to see.” And Yoda took a seat. The sleet yielding, clouds lifting, revealing the valley far below.
* * *
Bonus: a belated April Fools vignette from Peters:
If we’d assembled 100 investors, economists, strategists and policy-makers on October 31st and told them Trump would be President, where would they have said stocks would be on April 1st? The CIOs responded to my question, “Down between 10%-15%.” And if we then showed them Trump’s Twitter feed for the last week of March, replete with Russian intrigue, legislative failure, and environmental overturns, what would they have then said? The CIOs laughed, “Down 25%-35%.”
So then why is the S&P 500 up 11% from Halloween?
So if we told our esteemed group of investors, economists, strategists and policy makers on March 21st - two days before the vote to repeal Obamacare – that the Freedom Caucus would prevail, Trump would fail, and the vote wouldn’t even take place, where would they have said stocks would be on April 1st? “Down between 5%-10%,” answered the CIOs.
So then why is the S&P 500 up 0.8%? They shrugged.
Then I asked, how often this kind of odd disconnect between expected price action and actual outcome leads to higher prices?
“Almost always.”