Pure Insanity

“In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule.” – Friedrich Nietzsche

Can we all just step back for a moment and consider the complete insanity that is gripping markets?

December ended with the first Fed interest rate hike in nearly a decade after years of talk that rates would rise.  The Federal Reserve was lauded for doing the right thing after the financial crisis, supporting asset markets. The time had come, the economy could withstand higher rates, and 2016 looked hopeful.

Then, what happens?  Stocks have the worst first week of performance in history. Second week continued to make that history.  All it took was 10 days, just 10 days, for every pundit, analyst, trader, and investor to scream that we entered a bear market.  Just 10 days, for everyone to scream that we are entering recession, and that the Fed made a mistake.

What changed?  Nothing except a historic and vicious decline in equities; a decline that Treasuries in the weeks before did not anticipate. The fact that all it takes is but a few days for the narrative to shift so dramatically is utter insanity.  To think that we “are entering” a bear market or recession completely disregards data that suggests weakness has been on-going for some time.  Small-cap stocks didn’t “just enter” a bear market.  They’ve been in a bear market for nearly a year now.  Despite such weakness, broad market averages did not respect that fact as only a few select companies masked tremendous weakness under the surface.

This is what the Fed hiked rates into – and in truth the Fed should have hiked sooner even into a bear market to restore some level of normalcy to “cost of capital.”  Why fear a recession or painful bear market?  Recessions are meant to cleanse the system of excess and inefficiencies.  Bear markets are meant to correct overvalued stocks allowing investors who actually do have a long-term vision for their money to buy low.  Instead, a sharp decline in stocks results in the masses who were so bullish on the future to so suddenly change their opinion on what’s to come.

So now the Fed is being blamed for market volatility and the decline in stocks having raised rates into the “sudden” bear market and recession. Concurrently, the Bank of Japan has joined Europe in setting rates negative.  Stocks cheer worldwide, and the narrative once again shifts to central bank negative rates as a tool to boost inflation and accelerate economic activity.  Again, all it takes is a few short days causing everyone to seemingly come up with a completely new conclusion over what the future holds.

Stop – please just stop.  This is not investing.  This is not even trading.  This is manic-depressiveness and bipolar disorder that is infecting the world because of short-termism.  Every move by the Bank of Japan and European Central Bank to ease has resulted in reinforcing short-termism despite any evidence that Quantitative Easing and negative rates solves anything.  It is far more important to spend time understanding an asset class or investment strategy than spend time listening to news and changing one’s thoughts the moment something happens.

Our research and market commentary (click here to view) are meant to help put things in perspective in a world full of so much noise and information that is either random or has no predictive power.  Yet, we must fight for perspective.  It’s the only fight we can fight to maintain our sanity as well.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.


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