The black hole of pessimism

This is going to be a philosophical post, but first some market comments. Jackass Hole and the balleyhooed NVDA  Q2 report turned out to be relatively non-events. The SPX is now one modest up day away from making all time high, with the NASDAQ notably lagging. The DOW has already made marginal new all time highs. What this is showing is that value/industrial type stocks have been market leaders as of late. Will this end up being temporary or long lasting? I've been meaning to do a post on this, but not this time. In the very short term I'm not very thrilled with the set up on the long side. We saw an extremely low put/call ratio reading on Friday coming into a weak seasonal period. I know it's just a single reading but more often than not, you'd be better off not entering the long side for at least a few days. Fear/Greed now at 63 which is moderate greed territory....still room to go higher before hitting extreme greed though. NAAIM exposure back to 81 which is on high side. Here’s another thing I’ve noticed….the CDN dollar has spiked lately and you typically see this near ST tops. Bottom line is that momentum is with the bulls and new all time highs are certainty doable this week but the ST sentiment backdrop shows that the risk of a rug pull is high. Unless your the daytrading type (which I am not), wait for a better pitch. 

I want to discuss pessimism, not only about when it comes to the market, but in general. I have found that once someone becomes a pessimist on the market or a pessimist in general it becomes very difficult for them to let go of it.  It seems once people cross the event horizon of the black hole that is pessimism, they get sucked in and can never escape. I'm not sure exactly why this is. I do know that many bearish/doomer arguments tend to be convincing and logical but the weakness of many of them is that they are rooted in dogma - "the market should be doing this because it's what I believe it ought to be doing" is at the heart of a lot of them. Perhaps the pull of pessimism is somehow tied into our natural inclination of being risk adverse.  I'm sure you've heard about the notion that for the average person, the pain felt after a loss is at least twice the intensity of the joy felt after a win. I know from my own experience the pull of market pessimism. When I started my career 24 years ago I had a bearish outlook on the market which was based on fundamental factors. As we went through the 2000-2002 bear market, my bearish beliefs become validated and even more entrenched. I consumed a lot of bearish content such Hussman, Fleckenstein and the late Richard Russell to name a few. When we had the first powerful rally from the March 2003 lows, I was able to snap out of the bearish stranglehold that was on me because I was open minded/aware enough to see that the market's character had changed. It wasn't just because the market was going up, but the way it was going up. Obviously I was grateful that I changed my posture so as to be on the right side of the market, but it was also good not to be a market pessimist anymore as it was impacting my outlook on things in general. When you're a bear/pessimist you are hoping to see bad news in order to validate your position.  This is toxic. This can turn you into a miserable son of bitch. I wasn't a miserable person from 2000-2002 but I was a doomer. I did notice however that most other bears were indeed miserable SOBs - they were also doomers in general and I suspected their bearish market disposition was a reflection of their general negative disposition and that there was probably a negative feedback loop in play. They seemed like depressed, miserable people - one guy even admitted it. When I was bearish back in 2000-2002 I remember expressing this to one of my friends at the time. At first he wasn't convinced but by 2002 he was. By mid 2003 when I was convinced that the market had changed tune and expressed this to my friend, he wasn't buying it and he never did all throughout the bull market of 2003-2007.  A co-worker/friend of mine whom I first me in 2006 was young and optimistic on the markets when he first started his career. The 2008 crash made him become more cynical but not overly. A couple of years ago he got caught up in the meme stock conspiracy and since then has become a doomer.  Everything is rigged according to him. He has also had some challenges in his personal life in recent years which likely makes him more susceptible to being a jaded doomer.  If you become a market bear when you are bearish on your personal life or world view in general, it would be toxic combination as these 2 dispositions will feed on each other causing you to lose market objectivity and simply turn you into a miserable, cynical SOB.

What good is it to be a pessimist in general? Let's say you end up being correct and the world ends up going to shit. Is that going to make you feel any better? It's not. You'll still be a miserable SOB. But what if your negative outlook doesn't come true and things turn out to be positive or a lot less bad than you were expecting? You will feel like such a fool as you realize you waisted your energy and your life being negative which no doubt would have caused you to miss opportunities. not living up to your full potential. When you're a pessimist, you will seek out bad news and probably hope for it, whether you realize or not. This is a sad and wasted life. All major human progress and innovation were the result of people being optimistic about an idea they had.  Yes, plenty of  people who had ideas failed but if everyone was a pessimist none of the successes would ever had happen. Imagine if the Wrights brothers were pessimists like many of their early critics There is no way they could have overcame the countless number of failures and roadblocks to eventually create a plane that could fly. Now, don't get me wrong. I know there's a difference between being an optimist and being delusional. Somethings are out of reach and no amount of optimism can change that. My daughter is a lifeguard level swimmer,  but she's a slow runner. If she were to tell me that she aspires to be an Olympic sprinter, I would definitely discourage her lol. 

I believe that the correct approach to life in general is to be a level headed optimist. Be mindful of what threats are out there and what can go wrong, but I don't see the point in living a jaded life, a life of fear always expecting the worst. It will be a wasted life. If you look back in history there were plenty of  times I'm sure a lot of folks thought the end was nigh.. Imagine how many doomers there must have been during the peak years of the cold war era shortly after the cuban missile crisis.  Somehow, someway we find ways to move forward,  we innovate, we change, we adapt, we advance and this can only come about by having a positive disposition - having the belief and drive to find the solutions, the advancements, ect.  Of course, advancements can create a whole new set of problems but are we better or worse off compared to 100 years ago? Anyhow, I digress here. The bottom line is that there's no benefit in being a pessimist. Problems don't  get solved by pessimists, advancements don't get made by pessimists whether it be on a personal or societal level. Let's say you're a pessimist about society and you end up being right and the world does go to shit... you're still going to be a miserable fuck,  but if you end up being wrong, like everyone else before you, you're going to be even more miserable and full of regret as you come to realize you waisted your life being worried and negative while you could have done so much more with your life by being an optimist.   

Circling back to the markets, when people first start investing, they are optimists by default because they buys some stocks in the hopes that they will go up. Then at some point they will experience a bear market and run the risk of getting sucked into the black hole of pessimism. I believe this was the case for a lot of investors/traders during the past 24 years, because during this time we have seen 3 major bear markets of 35-50%, and 3 mini bear markets of 20-25%.  When you experience a heavy loss, there's 2 ways to handling it - you get jaded and blame it on the "powers that be" or you take ownership, learn from it and try to improve. Most people fall under the former category because they tend to have this attitude on life in general. When something goes wrong, it's not my fault - it's the other guy's fault. It's easier to shift blame than to take ownership when something doesn't go our way.  You see it with sports fans too - "if it wasn't for the ref we would have won!"  It's easy to fall into the black hole of pessimism. For me, I was always able to avoid doing so. There have been a few dark times in my life both personally and financially when I could have easily fell into it. Of course, I felt down and negative when these bad things happened but it didn't last for a long time. I had the awareness to know that being negative wasn't going to make things any better, it would only  make it worse and the only way to make things better is to take positive actions. The longest I ever felt down was when a girl I had a big crush on ended up finding a boyfriend just as I was getting the courage to make a move.  I remember how I felt when I found out. It was the worst feeling I ever had and it left on scar on me....maybe that will be a story for another day.