E Tuesday Talk: Stimulating Stimulus

Congressional approval of President Biden's stimulus plan stimulated activity in the markets yesterday and there was certainly plenty to go around from the Dow advancing 237 points to Bitcoin (BITCOMP) soaring past $40,000, spurred on by Elon Musk. The S&P (SPX) closed at 3,916, up 0.74%, the Dow (DIA) closed at 31,386, up 0.76% and the Nasdaq Composite (COMP) closed at 13,988, up 0.95%. Currently, futures for all 3 indices are trading lightly in the red. The rocket ride continues for now.

Entrepreneur, Business, Rocket, Start Up

Contributor Lance Roberts in a TalkMarkets Editor's Choice article titled Extraordinary Popular Delusions & The Madness Of Crowds continues to maintain that we are in a dangerous market bubble and cites the following signs among professional and retail investors alike:

  • Bullish Psychology - "market bubbles are a function of “psychology,” as investors’ herding behavior drives prices higher. Therefore, price and valuations are only a reflection of that psychology."

  • Confirmation Bias - "One of the signs that you have entered into a mania phase is when people have trouble absorbing non-conforming information. Confirmation bias” is a psychological behavior where individuals disregard any information which conflicts with their current beliefs...There are currently many signs of exuberance in the market from retail traders."

  • A Failure To Think Logically - "Overpaying for value, investing in fundamentally unsound companies, and speculating without any knowledge of the investment were all forgiven by rising prices. However, when the psychology reverses, those mistakes will both be revealed and brutally punished." 

  • Doing The Wrong Thing - "the trouble with bubbles is they prove very tempting opportunities to do the wrong thing. Many investors will take their chances and disregard the warning. They will follow overly optimistic projections to the top and will also follow them back down to the bottom. Some will try but fail to resist the temptation."

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