Weekly Market Pulse: Perception Is Reality

It is said that there are two types of people in this world. Those who see the glass as half full and those who see it as half empty. On Wall Street we call them bulls and bears. A bull can see an economic report and perceive it in a way that seems wholly illogical, misguided and downright stupid to a bear. And vice versa for the bears who see every report as a harbinger of doom. What’s really strange about this is that, at times, they are both right, bull and bear. They just see things from a different perspective. They perceive the world through different lenses, and in doing so, create their own realities. The problem, of course, is that the lens we each use, is distorted by our experiences, our knowledge, our preconceived notions, emotions and, of course, self interest. None of us is free from cognitive bias; the best we can do is recognize it for what it is and try to overcome it. We won’t always be successful but we don’t have to be. Successful investors acknowledge their errors, learn from them and cut their losses short.

We are at an interesting point in this economic recovery and bull market. Stocks are either discounting a very large increase in next year’s earnings (bull) or completely nuts (bear), both of which are at least partially true. Bonds are either forecasting economic recovery or offering a stern warning about future inflation. Commodities are experiencing a rapid recovery in demand (or anticipating one) or constrained by supply issues due to shutdowns and other COVID restrictions. The dollar is either rising because the US is performing better than the rest of the world or on the verge of collapse because we’re in debt up to our eyeballs. A year ago, few saw this bull market coming, sentiment about as negative as I’ve ever seen it (and I’ve been doing this a long time). Today, it is hard to find anyone who isn’t making money in stocks (at least according to them) and Instagram is full of people with no clue offering advice to people with no job and gathering later on Reddit to brag about how little they actually know and how much they’ve made despite it. I have never in my life seen such widespread schadenfreude – in all aspects of life – and I can’t help but wonder about the effect on our souls. Karma is a bitch too.

I can’t tell you who will prevail in the current market debate between the bulls and bears. I’d also suggest, politely, that neither can anyone else. You can spend 24 hours a day reading economic reports and poring over charts and you will not know any more about the future than that guy on Reddit. If you have learned nothing else over the last year it should be this – anything can happen. Last week, produced another in a long line of “damn look at that” moments in this bull market. Around 11 AM Friday, I was scrolling through a list of stocks I watch when I noticed one, Discovery Networks, was down about 25%. I owned DISCA last year before the Reddit crowd offered me a price I couldn’t refuse and I’ve been keeping an eye on it because I still like the content business. I couldn’t find any news on the company, no obvious reason it should be down 25%. I just chalked it up to more Reddit craziness and went about the rest of my day. Over the weekend it was reported that Discovery and a number of other stocks were part of a margin call on a large family office. My first thought was that can’t be right. Family offices don’t use leverage. My second thought was, never mind, this is crazy market where anything can be true. And it was apparently. Some ex-hedge fund guy with previous regulatory issues (in the US and China allegedly) blew himself up. Had a net worth of $10 billion and leveraged it up to $50 billion. Apparently, there is no dollar shortage if you need them to speculate on stocks. I don’t care how much you know about macroeconomics or trading or how well you read a chart, you can’t predict a multi-billion dollar margin call.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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