Granted, not as much as they are now but the writing was on the wall.<\/p>\n
At some point, it became common knowledge that rates would head upward.<\/p>\n
All of us (except the Fed) knew this. Valuations were at “dot-com” bubble levels.<\/p>\n
Yet, no one cared…<\/p>\n
The Cause and Effect of Market Perception<\/h2>\n
Today, we’re still talking about the same things we were talking about back then – inflation and rate hikes.<\/p>\n
In fact, we’re talking about it so much, I’m looking for reasons why it can potentially go the opposite way back into a deflationary period.<\/p>\n
So, I’m actively looking for reasons to adjust my call from early 2021, when I said inflation is the biggest trade to bet on<\/a>.<\/p>\n History shows when everyone enters groupthink, it’s time to think differently.<\/p>\n Yet, I wonder what triggered everyone’s flip this year… resulting in the worst half since 1970.<\/p>\n If the market is truly forward-looking, then some of this year’s losses should’ve been distributed more evenly in 2021.<\/p>\n So, what really changed?<\/p>\n I would argue… not much at all. Except people’s collective perception about risk.<\/p>\n Because identifying changes in market perception is more<\/em> important than assessing value in the short term.<\/p>\n It’s why the market couldn’t drop last year, and it’s why the market can’t rise now.<\/p>\n Every relief rally has failed so far… although I do have some hope for this current one, as I explained in my last essay<\/a>.<\/p>\n But the point is… the market is manic. <\/strong><\/p>\n And we must constantly account for that reality.<\/p>\n Fundamentally-oriented investors will have my head for saying this, of course. But the short term is <\/em>more important.<\/p>\n It’s the difference between being profitable or not. Get in at the wrong time, and your fundamental outlook is worth as much as the paper (or spreadsheet) it’s written on.<\/p>\n Over the years, I learned this is why investors that have seen it all roll their eyes when young analysts present mountains of fundamental evidence for one opportunity or another…<\/p>\n Market timing is everything.<\/p>\n It’s why making money in the market is hard. Fundamentals just don’t capture mood swings quickly enough.<\/p>\n It’s why more and more Nobel prizes are handed out for efforts in a field known as Behavioral Economics.<\/p>\n
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