Back to business

Due to CFA studies and other personal stuff I've been somewhat detached from the markets. I'm quite relieved that the CFA studying is over and done with. I hope this is the last exam I ever write. I'm 32 years old now and I feel like I never finished school. When I finished university I would often have dreams that I forgot to do a major assignment or forgot that I had signed up for a class that I did not attend to for the entire year....I still get these dreams!....although less frequently.

I've read the latest weekly piece from John Hussman who I think is a fantastic financial thinker. He’s an economist and money manager who often provides intriguing analysis, although he can be quite technical. I could never be even 25% as knowledgeable about finance and the economy as he is even if I tried my hardest. But he, like everyone else, is not immune from suffering the behavioral finance biases that are mentioned in the CFA level 3 program.

When Hussman takes a stance i.e. bearish/bullish he will defend his stance with confirming evidence even when the market moves significantly in the opposite direction. This is known as confirming evidence trap which is a form of anchoring.
I don't think I've ever heard him say "I was wrong" but rather he uses the "I was early" defense or the "if only" defense. An example of the latter is how Hussman defended his decision of removing hedges from his fund too early last year by claiming that had the government acted in a way that he felt was the right course of action, the market would not have collapsed as much as it did last year.

A famous speculator in the early 1900s (forgot his name) said something like this

"The purpose of the market is to make fools out of the most amounts of people"

I am a true believer in this statement which is why I always look for what would be the most surprising thing the market could do to make most people look foolish.

I haven't looked at enough charts/indicators yet to make a full assessment however I will say this....conditions for this rally had deteriorated significantly, namely, the spike in bonds yields and other factors such as bullish sentiment. However, I STILL don't think the burned bears from the past 3 months have truly given the market respect. They have done so from time to time but they are quick to get negative the moment the market shows any signs of weakness.

Until I see most people FULLY embrace this market instead of looking over their shoulder ever second for the big bear to come back I don't think there is substantial downside risk. It will be like the boy who cried wolf. Only when the people don't believe in the boy anymore will the wolf truly come....in this case it means only when most people don't believe the bear will come back will it come back.