Contrarianism and a buoyant stock market
/I generally am not a contrarian. It just takes too much psychic effort. I want people to like me! At the same time, I am generally pretty pessimistic and a worry-wart. Friends used to call me Eeyore.
But, I am just not feeling the current market mood. That mood is about a complete 180 from what it was just a few months ago (h/t to this Axios post for some of the data).
Source: CNN
CNN’s Fear & Greed Index is at all time highs.
Bank of America Merrill Lynch’s survey of fund managers is at an 18-month high. “After months of investor worry and recession fears, global growth optimism soared to 6% from -37% in November, an 18-month high and the biggest jump in 20 years, according to the Tuesday survey. A total of 178 managers with $574 assets under management contributed to the survey.”
The S&P 500 is at all time highs.
There are a lot of hypotheses about why the stock market is so high, and why people are so optimistic. But I just don’t really get it. I see a few problems:
Source: Stockbiz.vn
The US-China trade war is still on, and I really think that unless Trump does a complete about face, it will continue. Even if Trump loses, most of the Democrats will likely push a hard line vs. China.
China itself seems to be slowing, and while it used to be “If America sneezes, the world gets a cold,” I think it is now China that takes that role.
Political risk remains high. Probably at some of the highest levels we have seen in quite some time. Look at Bolivia, Chile, Hong Kong, Lebanon, Iraq. The weird thing is that those are all over the world. And those are just protests. We also have Trump’s re-election (or defeat), Brexit, the rise of right-wing parties in Europe, trade spats between Korea and Japan.
It seems like the whole investing world is positive right now. For Vietnam, the stock market is doing well (we talked about this last week), but it is unlike the others, it is well below the levels we saw back in mid-2017 (see chart up to the right). I don’t really know what that means. It could mean that there is more room for it to run (since it has run higher), or it could just mean that those past periods are anomalous and should be ignored.
I take away two things: 1) the markets are very bad at pricing political risk. 2) People are really optimistic, and I might be wrong to be so eeyore-ish.
Deer mouse! On a completely unrelated note, a deer-like animal was found in Vietnamese forests. It helps to listen to local people. They may know their environment better than scientists living elsewhere.