On Sundays I like to listen to my favorite podcasts.  I’ve shared my favorite investing podcasts, including Financial sense and Macro Talk.  The first of those has paid and free content, and every other week the end of the free Saturday podcast includes a ‘macro’ section. 

I’ve described what macro means in this context so I won’t again.  But the world is so complicated right now in a macro way.  The US dollar has been rising at a record pace because of the Fed’s actions on interest rates.  Europe is facing a significant energy crisis, and Germany may or may not have enough energy for citizens to heat their homes through the winter.  Everyone thought that Germany and Russia would work things out, and the Nord stream pipeline(s) would carry enough natural gas for Germany to ge through the winter. Then, BOOM! Someone blows up the pipelines on at the bottom of the ocean. Who? Nobody knows. Someone who has a submarine. The impact will be felt across Europe, and will cause ripples, if not waves, around the world. 

There is much more to this complicated story.  China and emerging markets like a strong US dollar to some extent, as it makes their goods less expensive in the US, boosting their exports.  But oil is sold for US dollars, so as the dollar goes up the cost of energy goes up for other countries, including those in Europe.  We aren’t talking 5%-10%;  it is more like 20%-40%.   Those are levels that disrupt economies, and now the Fed has to decide how important it is for them to boost rates further.  At what point will the system break? Nobody knows!

Fascinating stuff.  All of these things impact the stock market of course, but not in predictable ways.  I get a kick out of news reporters who say, at the end of the day, that the market went up because of this, or down because of that.  Given that people are trying to buy low and sell high, why don’t they do those reports in the morning, before the market opens?  The reason is because there are always at least two sides to everything that happens. Many times, articles will change their titles midway through the trading day to reflect the new ‘reality.’

Some people say they KNOW what will happen. The investing world calls them permabulls or permabears. Permabulls are zealots about particular companies, or about the stock market. “It always goes up!” Do NOT ask them to invest your hard-earned money. Stick with advisors who say “I’m not sure” or even “I don’t know.” The permabears are pessimists who always see the worst things that could happen. Your money might be safer with them, but you may only earn 1% on your savings each year.

I’ve described technical analysis vs. fundamental analysis in earlier posts.  Even with the objective data provided by fundamental analysis, there are always two sides.  Is Apple fundamentally a good company?  Even though demand for the new iPhone is below expectations, a recession is looming, and China is still offline?   Is Facebook fundamentally sound even though nobody is buying into the meta nonsense?  Apple’s price has been falling (as have all stocks) and Facebook shares have fallen further than 95% of S&P 500 stocks.

Emerging Market Stocks

I got a kick out of this headline that didn’t age well. To paraphrase it says that conflict in the Ukraine and China problems make emerging markets a great investment right now.  The article came out on September 2, 2022.   Let’s look at a chart of emerging market stocks for the last three months.  How have things gone since the beginning of September?

Likewise, with technical analysis there are always (at least) two sides, each with their own nicknames. Those following the crowd are trend-followers; those who go against the grain are contrarians.  The latter group believes that when everybody believes the same thing, something different will probably happen.  The logic is almost perverse, that the stock market wants to hurt the most people as often as it can. 

But the psychology behind the idea is sound.  For example, right now everybody is pessimistic about stock returns.  Everyone who would sell their stocks has sold them by now, because things are looking so bad.  If that is true, the only people left trading want to buy, and they will push prices up because of the low numbers of sellers. 

The same thing happens at the top of markets, when everyone is optimistic.  At some point most of the money on the sidelines has been spent, few buyers remain… and sellers push prices down because of the lack of buyers.  This article explains why right now, as everyone is very pessimistic, the market might rise soon.   A ‘short squeeze’ is when people who were negative and betting against the stock market are forced to buy in the absence of sellers.  That dynamic sometimes creates powerful rallies in stock prices, for a little while anyway. On the other hand, many people sold at the close on Friday because the market fell below the price of the S&P 500 at the start of 2021. “I didn’t make any money since the end of 2020? I’m getting out!” Always two sides.

II consider myself a contrarian – not only in the stock market, but in all areas of life.  Not a pessimist, as pessimists always see only the negatives. A contrarian sees good where everyone else sees bad. If a plague destroys the human race, “at least global warming won’t be a problem anymore.” I blame my contrarian stance on being bullied as a kid, so that I never trust the ‘in’ crowd.  If everyone believes one thing, I’m the annoying guy asking, ‘but how do you KNOW?’

There are ALWAYS two sides, to almost everything. Zealots and pessimists only see one.


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