I'll say it - it's been an interesting 18 months in financial markets. As the old Chinese proverb says, "May you live in interesting times," and so we have. Last November, I penned a newsletter about how times seem to be changing. From that missive: "What's been true the last 50, maybe even 100 years, is not necessarily going to be true for the next decade or two. Historically reliable relationships & correlations are breaking down and proving to have no predictive value anymore. For instance, last year we saw growth stocks, which typically outperform major stock market indexes in bull markets, turn decidedly lower well before major market indexes did. This year bonds, which usually serve to buoy an investment portfolio when stocks decline in value, have fallen in value almost as much as stocks have. And while interest rates have always moved up and down, the speed at which they've increased in 2022 has left portfolio managers with their heads spinning." I went on to speculate that we'd need to think differently and more creatively going forward, not relying on past "tried and true" relationships. And while I still believe that, there's one area that I think won't change - human emotion. Financial markets are controlled by many things but, at the end of the day, I still believe human emotion impacts them most. Why is that important? There's something that's been bothering me ever since equity indices topped out in January 2022. Something that's been missing. Some call it "The All Clear Echo." It's the first sustained bear market rally, the one that takes us to the "max stupid" point. I wrote about this in August 2022, thinking we'd get it then, but that rally fizzled almost to the day that I sent my newsletter. An echo of the prior top, the All Clear Echo is the point at which investors have forgotten about the losses sustained just months prior, when they wanted to sell everything, and are now wanting to buy the same stocks they sold at a lower price just a short while ago. The fundamentals remain the same, perhaps even worse, but because price has risen, it's spurned a new round of FOMO - or "Fear of Missing Out." It's May 2008, when investors thought the Bear Stearns collapse would just be a Bear Stearns thing. Stocks rallied to within a few percent of their all-time highs. It's September 2000, when some tech stocks exceeded their March 2000 highs. The relief is palpable. The system seems cleansed. But it's not. It's a mirage, a lie, a farce. And ultimately, a trap. While not every bear market has an All Clear Echo, most do, and so far, I don't think this one has. At least not one that I've felt. Will we get it in 2023? We shall see. It's certainly something I'm on the lookout for...
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