December 16, 2013

Bubble Talk

I  believe most people have by now caught on to the market acumen of Barry Ritholtz. I have personally been an avid reader of his by-internet-standards ancient blog (The Big Picture) for many years now.

Since starting his blog, Barry has become a household name and his visibility has rightly increased in proportion to his subtle understanding of Wall Street, its psychology, its behavioral blind spots. His analyses have been right a lot more often than most and way more often than the proverbial dart-throwing real and metaphorical monkeys. His ability to separate noise from signal has also been stellar.

It just so happens that he's been consistently calling out and challenging the perma-bears, the bad-faith bears, the political bears and all other types of bears who have been a vocal, most often hateful, angry, numerous and wrong-headed presence since the current bull market started in early 2009. And therefore, along with a growing following, Barry has accumulated an incredible portfolio of very very angry haters. But that comes with the territory and if anyone has the mettle to deal with that many haters, I would say he is.

I would also like to clarify that I don't know Barry personally. Any insights I have on his personality and his ability come from having read dozens upon dozens of his blog posts.

What compelled me to write this post is his just-penned very informative Bloomberg piece (on the markets, on his intellectual process and on his outlook) that just about anyone interested in trading and investing should read.

I will excerpt a few paragraphs that I particularly enjoyed but you should read the whole thing:
[...]Over the past few weeks, I have been trying to push back against the usual contingent of bears. In particular, I have argued that this bull cycle is not yet over, markets are not in a bubble and that people have been sitting for too long on way too much cash. 
[...] 
First, our discussion on recent surveys of affluent investors revealing them sitting on $6 trillion dollars and as much as 50 percent cash in their portfolios was about investor psychology. That pile of cash is not likely the result of carefully studied market history and astute observations of timing. Rather, it is most likely the result of fear. It has been a drag on portfolios for at least four years; it typically reflects a combination of poor planning and emotion. 
[...] 
Second, the classic problem with too much cash is the investor's ability to re-enter the markets. A broad contingent of cash-heavy investors never seems to be able to get back into a properly balanced portfolio. To quote Peter Lynch, "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” That quote succinctly describes the circumstances for many since the March 2009 lows.
          [...]
Finally, I have been calling this the “most rally hated in history” since 2009. The vitriol directed at the Federal Reserve, forecasts of hyper-inflation and currency debasement, the worship at the Altar of Gold are part of the liturgy of equity dislike. Coumarianos suggests these are strong words requiring an “impressive knowledge of the sentiment of previous rallies.” I hope that its something I have demonstrated previously (See this and this and this). 
I continue to see signs that sentiment has gotten frothy. We are long overdue for a 10 percent to 20 percent correction. But I do not see any market internals suggesting that this bull market is over. Perhaps that discussion is worthy of a column unto itself.
          [...]