‘Wall of Worry’ is a term I think we all know. The reason is that we appreciate the meaning of another market concept, which is that bull markets walk slowly up the stairs whereas bear markets drop quickly by the elevator.
Given that most investors today have fallen in love with Exchange Traded Funds, and the flat-fee financial advisors who recommend them, maybe people have forgotten another market axiom, which is that investments are sold, not bought. They are sold and they always have been sold. Yes, even ETFs. The problem today is that the sales pitches are vague and not able to be factually assessed. Like fake news – or the words of some politicians – it is hard to separate fact from fiction in the market now.
Today I want to say that I feel too many investors are caught up in technical analysis and forget what investing really is. But, maybe I’m wrong about that. Maybe a squiggly line interpretation of price motion is all we can do when the powers that be – the central banks and their Humongous Bank & Broker units – have decided to refer to their clients, not by name but by as an account number, and sell meaningless instruments into the accounts of the mass market based on the most subjective of stories, typically crafted from the world of politics and macro-economics, clearly not about investment.
That last sentence is so many words, much like a blanket thrown over the mass market by the powers that be when it comes to ETFs, too much probably for people to contemplate in the brief moments they have available. I’m not one for group-think, but maybe that is all that is likely to happen in today’s world. Insights by thought-leaders are thrown into a melting pot with the thousands of other messages being sent and received daily.
Politicians today can say pretty much what they want, knowing that most people will forget a singular message – one step in the market’s staircase if you will – and continue to think about the Wall. Group-think is a problem.
Asset allocation by way of pooled risk? Brand popularity? Momentum studies? Hmmm. The reason I have invested my time and resources into a proprietary database management system is that I wanted to have market facts at hand that will enable us to invest properly and to discuss investing. Hopefully my system can help make it happen.
An example of group action? When anyone looks over the price charts of all the top-of-mind Bankers and Financial Services companies – they will see that JP Morgan (JPM), Goldman Sachs (GS), Bank of America (BAC), Wells Fargo (WFB), Citigroup (C), Morgan Stanley (MS), American Express (AXP), Travelers (TRV), US Bancorp (USB), PNC Financial (PNC), and Charles Schwab (SCHW), skyrocketed the day after the US presidential election. International members of HB&B did the same, like Barclays (BCS), Credit Suisse (CS), UBS (UBS), Deutsche Bank (DB), Royal Bank of Canada (RY), and Toronto Dominion (TD). So too did the smaller US banks like Suntrust (STI), First Republic Bank of San Francisco (FRC), Comerica (CMA), Signature Bank (SBNY), Pinnacle Financial (PNFP), Bank of the Ozarks (OZRK), Simmons First National (SFNC), Sterling Bancorp (STL), Home BancShares (HOMB), Great Western Bancorp (GWB), Eagle Bancorp (EGBN), Credit Acceptance (CACC), and BOFI Holdings (BOFI), among so many others.
What is important to know is that all these financial service companies did not report revenue and earnings on election day and they are not all American. Yet their stocks continued to explode higher in price for the next one, two, three months, shot there by Friends and Family accounts but largely by ETFs. But how is it that ETFs took in so much new capital – enough to move these stocks almost instantly higher by 20%, 30% and more — in the next couple days after election day? Momentum, sales pitches, etc. People were sold.
For investment reasons, most of the UK and European banks have floated back toward earth in the past month; but, HB&B and the others are still flying high on ETF fuel – as real investors have been taking profit, which is why I say caveat emptor. Unless the facts show equivalent money is going elsewhere, sufficient to sustain the broad market indexes, the broad market is at best stuck at the penthouse, for the moment. Will the people’s money now be going into Oil & Gas stocks? I could be wrong of course, but, while it hasn’t been the case this week, I think it must or else the broad market will be going down the elevator as investment reality sets in.
All the best,
/Bill
JPM,GS,BAC,WFB,C,MS,TRV,AXP,BCS,CS,UBS,DB,RY,TD,CMA,SBNY,PNFP,PNC,OZRK,SCHW,SFNC,STI,STL,USB,HOMB,GWB,FRC,EGBN,CACC,BOFI
