Open discussion: why does the market seem so relentlessly bullish?

Investment Analysis Clubs Macro Economic Trends and Risks
#11

This is what I am guessing. There was a time (#oldendays) when people had to have a certain something to invest in stock markets. Even just ONE generation back (I am #50’something) that the only way to get stocks was in a retirement package. All of this kinda leveled the playing field to specific individual tendencies.

I started investing in the early 90’s. An internet bust at that time, while painful, made sense if you compared it to the tulip bubble. There was the idea that people of means invested, then something would “occasionally” get wonky and the market would correct.

This is when I learned the term ‘capitulation’. It was new at the time to all the fresh investors. We all learned that we just had to be patient until ‘capitulation’ happened. THEN!!! everything would be right priced and there was no way to lose after that…(well until the next ‘correction’).

About 15 years or so back, I noticed that there was a whole new direction in the market. Many more people could access brokerages, and many many more people could try to be day traders. At that time, I started to wonder if ‘capitulation’ was a new buzz word that all the “young” traders were looking for? At that time, did the fact that SOOOOOO MANNNNYYYYY new investors could invest, investors were now too diversified for capitulation to ever happen??

Look at market charts from about 2010 to know and you will see that every biggish dip has been followed by some kind of accumulation stage. There are so many new (kinds of) investors that the rules of the last 50some years are thrown out. Too many redit threads that are trying to predict “THE TURN AROUND!!!” that every young investor jumps on.

I agree that it has seemed too bullish in about 20 years now. There hasn’t been that big melt down that drives all the speculators out of the market. There are so many new investors every year that fall for the “it’s different this time” line…that the markets are very frothy.

No idea where this goes from here, but that has been my operating theory for a decade or two now. Just look at crypto for VERY similar chart patterns based on public sentiment and not actual business reasons.

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Anyone investing in VIX?
#12

You just saw me buy stock!

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#13

@dlbuffy - Thank you. Very interesting perspective! It may be very true that the “market” as we knew it is now a different animal and now we investors need to hunt differently.

'38Packard
I’ll need to sleep on that for a while…

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#14

I could have chosen to scrub our kitchen floor or take a nap this afternoon….when I woke up it was too late to clean the floor…

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#15

I remember listening to an old geezer named Bernstein who was on Consuela Mack’s investment show in 2009. She asked the veteran stock picker what he was buying in the midst of the maelstrom. “Bonds” he sez. “Bonds?”, she asks. Yup - he explained that he didn’t need to make any more money, but wanted to retain his money.

As most of us are aware (at some conscious or unconscious level), the market is “fixed” and we are but motes floating in a storm created by the interactions of high frequency CPU trading based on algorithms interpreting a wide variety of electronic tea leaves in a complex “pump and dump” game.

Over the years I’ve made (and occasionally lost) a reasonable amount of money trading stocks. I have come to realize the adage that “this time it’s different” is a hoax to tempt the greedy into overextending themselves (over time, it is never different). The value that a share represents is the proportional slice of the intrinsic value of the company plus a reasonable value of the positive growth in cash flow predicted by metrics that make sense.

Back when I was about 28 and knew “everything”, I was the target of an elderly salesman who was about 55 years old and who was, in my eyes, an over-the-hill relic from a bygone era. It took me about 25 years to realize how wrong I was :slight_smile:

Each generation needs to learn the same lesson. While it’s true that I occasionally sell shares which have either disappointed me or overshot my expectations my current attitude is to pick good (frequently boring) companies which, as a portfolio, will continue to provide a reasonable income stream proportional with the money invested (adjusted for inflation) as well as a moderate possibility for organic growth.

I go on the assumption that I am not going to get important information faster than the computers front-running me, nor am I smart enough to create unique models which they will studiously avoid (followers of gurus like Kathy Woods who convinces many that they have a secret sauce are simply the latest of a long history of rubes who follow the meme that “this time it’s different” - they aren’t the first and they won’t be the last).

Patience is the name of the game and true diversity of assets (both in type/currency/geography) while not maximizing gains at any given moment, provides the ability to build wealth over time.

The likelihood of a recession, with an accompanying stock market “crash” is significant enough that I am currently about 50% in cash (and short-term similar bonds). My equity portfolio has a substantial portion invested in terms of foreign currencies (details on a parallel post put up yesterday).

On a number of recent occasions, various specific shares (Cisco, Meta, FedEx, Citicorp, Tencent, Baba, Baidu all come to mind) have been (IMHO) unfairly whack which allowed me to pick up positions at a bargain. As the market drops I will be keeping my eye out for other opportunities.

At one point, blackjack games in casinos were played with a deck of cards. Nowadays, there are ten decks in a shoe.

For those who prefer gambling, you have a better chance in Vegas than trying to consistently beat the market-makers at their own game.

Jeff

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#16

This thread is full of complex explanations while Occam’s Razor suggests finding simple answers. My simple explanation is that bottoms can only be known in hindsight.

Think back to March 10, 2009. Was that the bottom? Was that a good day to start accumulating? How was that different from a bull trap? How long after March 10, 2009 was it safe to buy?

Had you not sold on the way down you would have less cash to invest and less chance of being caught in a bull trap. Another good reason for not timing the market.

Between October 20 and November 8 I added TSLA at an average of $200.86, now down to $156.80. Good, bad, or otherwise? What will it look like in a year or two?

The Captain

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#17

I’d guess it will probably be up in a year or two. BUT, there are still risks:

  • Musk will likely have to sell some more to get cash to keep twitter afloat. And sell even more to pay taxes (since his basis is close to zero on most of his shares). HIGH probability.
  • Shareholders may eventually revolt and remove Musk. LOW probability.
  • Materials acquisition in 23-24 will probably get tighter and delay production. MEDIUM probability.
  • Competition will increase, especially in mid-tier. This usually has the effect of lowering margins for everyone. HIGH probability.
  • Political issues with China and other countries may interfere with speedy marketing and deliveries. MEDIUM probability.

I think overall, Tesla is still the best EV maker by far. Best financially for sure. Nobody else even comes close to their margins. This will help them retain the leadership position for longer.

I’m thinking of selling puts as a way of acquiring a position in Tesla (or simply keeping the premium if it works out that way). I was looking at the 145 puts early next year. Seems like the market wants to “punish” Tesla a little more, but then the company will report results in January. The results will probably be good, or good enough, but if there is any hint of negativity (China, etc), they may punish it some more. But I don’t think they can hold it down for the duration of next year. Even if there is a recession, the typical Tesla buyer will be less affected by the recession. Not to mention that the typical Tesla buyer already ordered their vehicle 3-9 months earlier! And not to mention that new government tax credits on EVs will begin in 2023, and the Tesla model Y will be one of the [very] few vehicles eligible for the offer.

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#18

This.

Where the market thinks rates will be a year out from now is significantly different than what the Fed is forecasting - which is why the market initially popped but then as the Fed started sharing their thinking, the markets (including today) started to give all those gains back.

So much can happen in an year that I think it is anyone’s guess - including Powell’s.

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#19

Happy to report this thread did not age well. :rofl: :rofl: :rofl:

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#20

I try not to overthink it. The Wall Street bookies were betting on a pivot/pause announcement by the Fed. Instead they got a bigger than expected drop in retail sales plus a firm reiteration that the Fed will not pivot/pause as soon as hoped. So now the are bracing for recession.

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#21

“The wise” said they wanted a reduction in the rate of interest rate increase, .5% instead of .75%. They got what they wanted. Apparently, what they really wanted was “better than expected”, the “expected” being .5%.

So, this morning, “the wise” stampede to the downside.

Steve

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#22

Happy to report this thread did not age well. :rofl: :rofl: :rofl:

It turns out there has been absolutely no change of heart on these other forums I frequent. Still rampant gambling fever and the certainty that big money is about to be made.

The main difference is half of them are going to bet downwards for a few days instead…

The other half, of course, just got wiped out.

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#23

I can now quantify some aspect of the ‘gambley-ness’ of the markets in 2022.

Imgur

Gambling using ‘0 day to expiry’ index options increased in 2022 to record levels far above peak bull market 2021, as a proportion of total options traded.

44% of SPX option volume had LESS than 24 hours to maturity.

Indeed the frenzy is so intense that this year 0DTE trading has been added for Tuesdays and Thursdays as well, because waiting up to 48 hours for your ‘investment’ to mature is a ridiculous burden on the emotions.

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Margin and SPX option gambling
#24

That is actually pretty funny.

#25

Talking of wipeouts. Bullish gamblers just got annihilated. And I mean Annihilated! This week. I wonder what the impact will be for the next few weeks till their paydays…

#26

Most of those sorts would be on margin. A payday wont help.

#27

They’re not using margin.They (by which I mean nearly 100% of the younger investors I know) are using short term options to get uncallable leverage and to limit losses. Every payday, they get a fresh batch of cash to buy new options with.

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#28

Just curious what age bracket are we talking?

#29

20-40, typically 25-35

#30

my boomer father is conservative and outside of AAPL not sure he has owned much tech, is happily retired managing his own money for a couple decades now. yet he seems, to me, slightly optimistic. Or at least he was when I last spoke “market/stocks” with him in the Spring. I remember thinking “this whole sucker gonna crash really hard” and that it reminded me of 2000-2002 or 2008-2009, but he wasn’t bullish but rather seemed to think it would blow over soon.

I think this is why he had a different view:

  1. I was close to tech/cloud/SaaS and understood (expected) a big bubble to pop. The railroad stocks and others he typically invested in may not have seemed quite so bubblicious to him.
  2. I remembered that he has some market tv (probably CNBC these days) that he consumes, and they are typically relentlessly bullish and just wrong (like Cramer) and we have to remember the Fed was screaming “transitory!” earlier this year still. So I think his bias was to not get too deep into the weeds. he is an investor and not a trader, so he absorbs just enough market news to satisfy his general sense that he isn’t putting his retirement funds at risk in the market.

I did note that he had more cash than usual, so he wasn’t blind either.

Contrast this conservative boomer to the GenZ/Millennials who grew up, investing-wise, in 2015-2019 and throwing darts yielded such good returns that they all felt they should start paid newsletters on twitter it seemed.

Covid hits, but is so lightning-quick with the V-shape that they all follow their buddies on reddit and elsewhere, and with no sports to placate their gambling fixation, they all jump into the stock market while stuck at home.

And everything just worked. Up and to the right.
Repeated positive reinforcement.

20x P/S ratios that once seemed outrageously expensive were now practically cheap!

What’s this other thing over here? SPACs…sounds great…jump in at the launch and watch your money 2x or 3x immediately…no-brainer!

How about meme stocks like GME and AMC? Pile on, bros…we going moon!

Tesla? Sure…let’s just make it a $1T mkt cap.

Crypto? Wait…seriously…we have an entire new ecosystem of “stocks” we can buy, and boomers are clueless?? ALL. IN. BRO.

NFTs? So, like, a jpeg sorta, but if we say it is worth $3m it just is? Totally makes sense.

In the Sales industry, I often comment that people “sell what they know” meaning they do the thing they are most comfortable with, most knowledgeable or familiar with, and what has worked before.

You have to be really really punched in the mouth to sit back and change your way of thinking. Does the young 20-something selling Amway or some other multi-level-marketing scam understand they are on a road to nowhere until they run out of money and their friends and family stop talking to them? This is a timeless lesson and as true now as it was in the 80s/90s thru today (my only frame of personal experience).

When I first joined TMF message boards in 1999, there were a lot of cocky posters, many even apparently retiring early, due to market run-up of mid-90s into bubble peak of 1999 thru March 2000. Just pure geniuses (in their minds) like the Earth had never seen the likes of before. Across all market sectors, too. Biotech, Gorilla Game, etc etc…

I was busy with a small business and less invested in stocks in 2008-2009, but I am sure people got cocky again leading into 2008. I know the real estate folks sure did.

Final point: the “punch in the mouth” I refer to hasn’t yet come, because it has been such a slow bleed all year. Down 20%? Will bounce back. Now down 35%? Will bounce back. One day you wake up down over 60-70% and you get to a point of wondering why you should sell now as it will just pop back to “normal” the minute you do. And so you hang on.

In early 2009, the mouth had been punched. I remember S&P was at lows, and again I wasn’t invested as much in market then, but a work colleague that I respected, who seemed above-average intelligent and sufficiently “worldly” made the comment that “the S&P will never recover from this”. I had long learned not to argue watercooler talk about religion/politics or the market, so I just walked away after mumbling something neutral-sounding. In my head I was thinking “but this is the time to buy”.

So when you hear acquaintances stop looking to BTFD and instead declare capitulation, that is probably a good buy signal.

Dreamer

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