The main purpose of the stock market is to make fools of as many men as possible

In these politically correct times I suppose I should change the title of this post to "the main purpose of the stock market is to make fools of as many people as possible" but fuck being politically correct, the original title stands. This phrase which is the motto of my blog was coined by Bernard Baruch, a US business man of the early 1900's. It's the most accurate description of the stock market that I can think of. The stock market is seldom obvious, seldom does what the majority expect it to do and the reason why is because the market is already aware of and therefore reflective of common expectations, views, fears, ect. So, if you want to "beat" the market you have to position yourself for how those expectations will be changing in the future.

Throughout this bull run that began in 2009 there has been no shortage of worries, no shortage of calls from "experts" warning us about immanent doom. Where are the "permabulls" who are calling for outlandish upside like Dow 30,000  in the late 90s? There are none to speak of. Yes, you can find bulls but they are relatively modest and few in number compared to the doom and gloomers.

I'm in the advisory business and all I've been hearing since last year is this "late cycle" narrative from the wholesalers I deal with. Everyone's on alert for the next downturn like I've never seen before and the "pros" have been positioning themselves accordingly.   The inversion of the yield curve is what really got everyone going since it has historically signaled an immanent recession. I'm not going to divulge as to whether the yield curve signal was as strong or meaningful as in the previous instances due to global distortions. What is key to note is the frenzy of attention the inversion garnered as a harbinger of doom whereas in the past, the yield curve inversion was not as nearly paid attention to. It speaks to the underlying, deep rooted pessimism that still lingers from the 2008 crash. If we go by the motto of this blog, then we are probably not in the late cycle. It would suggest that the cycle still has at least 2 more years to go. When was the last time the investment "pros" as a whole correctly positioned themselves for "late cycle"? The answer is never. The 2008 collapse was a "surprise" just like every other major downturn. Another great example of a surprise was the collapse of oil prices in 2014-2015. How many "experts" were calling for "late cycle" oil prior to that collapse? The answer is 0.  Literally 0.

My point here is that the time to really get worried about the long term is when there are no worries! We saw that type of no worries feeling in late 2017- early 2018 when "global synchronized growth" was the common mantra and retail was pouring money into the market. This ultimately led to a 20% correction which wiped out the optimism reverting it back to the pessimism that had been persisting for years prior to it. 2019 was characterized by fears of an immanent recession which never came to pass. Now we are starting to see green shoots of a rebound as Global PMIs have been turning up, so called "progress" on the trade war has happened and the Fed cutting rates appearing to be on hold for the foreseeable future. Yet this budding optimism, if you want to call it that, is still quite fragile because there's still quite the concern about what would go wrong on the trade war front, the repo market,  politics, ect. The bottom line here is that there is still plenty of room for upside re-rating of expectations which would send the market notably higher in 2020. What the market does in the next few weeks is a tough call as it typically is.