Soome Consensus About the New Year's Markets
Happy New Year!
By now, we've gotten input from our various "Brain Trust" members. While there's always variation in the views from each, there was some consensus this go-round. We'll share that now.
The first item, stocks: They're likely headed up. While not everyone has exactly used "Melt-Up" to describe the current state of the stock market, they're all basically in tandem with the Melt-Up concept. That should portend a rise in prices from now until...well, exactly when?
They agree on the rise, not necessarily on the "until when." But that's to be expected. Each sees the world and the markets through a different lens. (That's one important reason we think it's worth paying them for their input: They're not in lock-step. They disagree, sometimes radically, which means we're not paying for insights and advice that simply agree with our own natural inclinations - a mistake many make when reading investment opinions and analysis. We want opinions and analyses that challenge our thinking.)
Getting back to the expected rise in stock prices, a Melt-Up - if it's to be a full-blooded one - should take our breath away at some point. The late great Richard Russell might say we can expect stocks to rise longer and farther than anyone expects. His Dow Theory Letters would categorize this as a "Third Phase" of a Bull Market. In a Third Phase - or Melt-Up - values go out the window.
So one thing we remember now is to ignore - or at least discount - any commentary regarding values. To say that stocks are cheap or expensive in the Melt-Up phase would be to focus on something that no longer has relevance. In Melt-Ups no one cares about whether an item is properly valued: They just want it. So they'll buy no matter the price.
And that's where we're headed, should this be a full-fledged, robust, historically consistent Melt-Up. No one will care about value. Price is no object. People - and institutions - will simply want to buy, and will buy.
Individuals will likely buy out of naivté and/or ignorance. Institutions - at least the legitimately more sophisticated institutions who have some smarts - will buy to keep up with the Jones's. Since their performance is typically measured against some benchmark - in this case, a stock benchmark - they can't afford to fall behind that benchmark. Otherwise, their clients will be up in arms, especially if the Melt-Up should extend out many months. If they don't keep up, they'll logically fall behind. They can lose clients that way.
So what do they do when the end of the Melt-Up approaches? Well, some will just ride it out. The investment managers that simply manage to beat a benchmark can afford that. When the bear market comes, and the ride up reverses to the downside, they'll just hang on and hope they don't lose as much as the benchmark. And many clients will pat them on the back for that.
Remember: Their objective is not to get fired. The client losing money isn't their concern, as long as they don't get fired.
But there are smart, sophisticated players who don't really care to lose money if it can be helped. These would include certain managers who don't simply follow benchmarks up and down. They want to protect their money and will exercise varying risk management strategies to avoid - or, more likely, minimize - losses. These sophisticated players will begin to sell as the final phase of the Melt-Up kicks into high gear. The frantic, manic buyers - the last ones in, who couldn't stand watching everyone else around them make money - will prove to be the perfect patsies for the big, smart players. As they clamor for now ridiculously valued stocks, the big operators will gladly sell to them.
Done with skill, these players will gradually, cooly reduce, perhaps even eliminate, their stock holdings as the patsies buy with abandon.
When the other shoe drops - the expected bear market - the smart guys will be on the sidelines, likely smiling. The patsies will be holding their heads in their hands - the heads the smart guys handed them.
What about that second item on which the Brain Trust seems to agree? It's gold.
Yep. It would seem that the bear market that began in 2011, after a historic 10-year bull run, was, after all, a classic correction in a longer-term bull market. And it would seem that the bull market is about to take off again.
At the moment, gold is overbought. So buying more this instant will likely mean you're buying at a price that may correct a bit near-term. But if this is the resumption of a long-term bull market, in the long run, that won't really matter.
So there it is. The New Year commences with two potentially strong trends in place. The first, stocks, may end their run-up sometime this year, maybe not. The second, gold, if it's really the resumption of an ongoing bull market, should see its price climb this year and beyond.
By now, we've gotten input from our various "Brain Trust" members. While there's always variation in the views from each, there was some consensus this go-round. We'll share that now.
The first item, stocks: They're likely headed up. While not everyone has exactly used "Melt-Up" to describe the current state of the stock market, they're all basically in tandem with the Melt-Up concept. That should portend a rise in prices from now until...well, exactly when?
They agree on the rise, not necessarily on the "until when." But that's to be expected. Each sees the world and the markets through a different lens. (That's one important reason we think it's worth paying them for their input: They're not in lock-step. They disagree, sometimes radically, which means we're not paying for insights and advice that simply agree with our own natural inclinations - a mistake many make when reading investment opinions and analysis. We want opinions and analyses that challenge our thinking.)
Getting back to the expected rise in stock prices, a Melt-Up - if it's to be a full-blooded one - should take our breath away at some point. The late great Richard Russell might say we can expect stocks to rise longer and farther than anyone expects. His Dow Theory Letters would categorize this as a "Third Phase" of a Bull Market. In a Third Phase - or Melt-Up - values go out the window.
So one thing we remember now is to ignore - or at least discount - any commentary regarding values. To say that stocks are cheap or expensive in the Melt-Up phase would be to focus on something that no longer has relevance. In Melt-Ups no one cares about whether an item is properly valued: They just want it. So they'll buy no matter the price.
And that's where we're headed, should this be a full-fledged, robust, historically consistent Melt-Up. No one will care about value. Price is no object. People - and institutions - will simply want to buy, and will buy.
Individuals will likely buy out of naivté and/or ignorance. Institutions - at least the legitimately more sophisticated institutions who have some smarts - will buy to keep up with the Jones's. Since their performance is typically measured against some benchmark - in this case, a stock benchmark - they can't afford to fall behind that benchmark. Otherwise, their clients will be up in arms, especially if the Melt-Up should extend out many months. If they don't keep up, they'll logically fall behind. They can lose clients that way.
So what do they do when the end of the Melt-Up approaches? Well, some will just ride it out. The investment managers that simply manage to beat a benchmark can afford that. When the bear market comes, and the ride up reverses to the downside, they'll just hang on and hope they don't lose as much as the benchmark. And many clients will pat them on the back for that.
Remember: Their objective is not to get fired. The client losing money isn't their concern, as long as they don't get fired.
But there are smart, sophisticated players who don't really care to lose money if it can be helped. These would include certain managers who don't simply follow benchmarks up and down. They want to protect their money and will exercise varying risk management strategies to avoid - or, more likely, minimize - losses. These sophisticated players will begin to sell as the final phase of the Melt-Up kicks into high gear. The frantic, manic buyers - the last ones in, who couldn't stand watching everyone else around them make money - will prove to be the perfect patsies for the big, smart players. As they clamor for now ridiculously valued stocks, the big operators will gladly sell to them.
Done with skill, these players will gradually, cooly reduce, perhaps even eliminate, their stock holdings as the patsies buy with abandon.
When the other shoe drops - the expected bear market - the smart guys will be on the sidelines, likely smiling. The patsies will be holding their heads in their hands - the heads the smart guys handed them.
What about that second item on which the Brain Trust seems to agree? It's gold.
Yep. It would seem that the bear market that began in 2011, after a historic 10-year bull run, was, after all, a classic correction in a longer-term bull market. And it would seem that the bull market is about to take off again.
At the moment, gold is overbought. So buying more this instant will likely mean you're buying at a price that may correct a bit near-term. But if this is the resumption of a long-term bull market, in the long run, that won't really matter.
So there it is. The New Year commences with two potentially strong trends in place. The first, stocks, may end their run-up sometime this year, maybe not. The second, gold, if it's really the resumption of an ongoing bull market, should see its price climb this year and beyond.
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