Wall of worry well in tact

It's been quite some time since my last post. I've been quite busy now that I have a "real job" and so blogging is low on the priority list, but I have a lot on my mind that I want to let out. Being in the position that I'm in, I have a lot of interactions with advisers, wholesalers and portfolio mangers which gives me a good sense of market sentiment. I can tell you that I hear a common refrain also echoed in the financial media which is this: "market valuations are high, the risk reward is not favorable" and so everyone has their guard up worrying about the next catalyst that's going to take the market down such as election uncertainty or a rate hike. I know from experience that well advertised worries seldom come to fruition or if they do, like Brexit, they tend to be short lived.

I know Donald Trump has talked a lot about walls but one wall that doesn't get mentioned much is the wall of worry that this market has been climbing. Coming into the year I wasn't too optimistic about the markets because we had a situation where rates were expected to rise along with a trend of declining earnings (due to energy companies). That negative posture was a correct one to have...for a few months. What has happened since the spring is that energy prices hit a bottom and rates have not gone up and that has caused the market to recover from the 1st quarter damage and then some. Everyone, myself included didn't expect the market to rebound as swiftly as it did from those lows in March. Most were expecting a lower low at some point. Well, as the motto of this blog has proved over and over again "the main purpose of the market is to make fools of as many men (any women lol)  as possible" and so here we are not too far off  the all time high which was made in the summer with very little fan fare. Mutual fund and ETF flows have been negative for most of the year even as the market recovered and made those new highs.  I can tell you this from my experience and that of history - major bull market peaks don't end like this. They don't end when people are worried, they don't end when monetary conditions are easy (even if we get some hikes). They end when there is complacency and few see it coming. When oil peaked out a couple years ago how many people called for a decline to $30? Nobody. Not once single fucking person. The prevailing sentiment was that oil was ultimately heading to $200 at some point. When oil started rolling over, most pundits said it wouldn't go below $70... then when it was in free fall we ended up to the point where there were lots of  calls for $20 (which of course never happened either and it marked the bottom).

At those lows in March, I can tell you that sentiment towards commodities was black enough to be considered "maximum pessimism" caliber and as so we are probably in the early stages of a multi-year commodities bull market. As such, I have been accumulating positions in commodity-linked names such as t.hwo. t.cke. t.nsu  and v.orc.b which are fundamentally cheap, have strong balance sheets and lots of upside potential.

I will conclude by saying that I can respect the notion that valuations are high by historical standards when it comes to the overall market (not crazy high but high) but then again, what are the alternatives? Bonds? Cash? GICs? Their yields are piss poor even if rates do start going up. Also, it would be reasonable to assume that if energy prices are on the up and up, overall market earnings will improve next year and what if the global economy actually starts grows at a normal pace which nobody is expecting? The market appeared expensive in the early 90's as it emerged from the recession of 1990 but it "grew" into it's high earnings multiple as the economy went from second to third and fourth gear. Some of you will poo poo this idea but you've probably been poo pooing this entire bull market as well.

Keep an open mind, pick your spots. I'm not suggesting you go all in after the market has had a big run but unless I see a shift in sentiment towards complacency, I'm still giving the bulls the benefit of the doubt if and when we get another pullback.