First month of year 2023 finished with one of the best monthly performances in S&P500 history. Many anxious retail traders are now very pissed that they listened to those perma bears and failed to hop on the boat. Well, they have no one to blame but themselves. If they have access to non-free market analytics, many of them already identified at least a 50/50 chance that we see 4100 and above.
The more interesting question is whether this rally will have legs like some people comparing this to the bottom of year 2009. They have a point – years after 2009, we’ve learnt that the central bankers agreed back in end of year 2008 that they will work together when the time comes to “save” the financial markets. So those who know about the secret agreement made billions off that bottom in 2009.
This time, that very interesting bottom in year 2022 was the work of Bank of England. If it did not intervene, the UK financial system would go under and the damage will spread worldwide. So, it is reasonable to speculate that all these major central bankers will do whatever it takes to save the game from total collapse.
The problem is, what if something happens that is bigger than these central bankers can handle? Are we at such risk now?
As long as these potential disastrous events have not happened, investors worldwide will pretend that all is fine and continue to seek for alpha.
Here is a funny video from Cathie Wood on her takes about various markets. It is funny because she is really just trash talking. At this point, she couldn’t care less whether her fund will perform or not. The hefty fees she has collected in 2020 and 2021 already put her in a very good place financially. Of course, if she is stupid enough to believe her own calls and put the money to work ….
In contrary, Jeff Gundlach, speaks things he believe in with much less fluff.
All these famous analysts and macro players are telling the world that S&P will have to fall a lot this year yet the stock market has been doing the opposite against these calls. Here is another one of these macro guys, Alf Peccatiello, talking about his current take on the financial markets. I like Alf and his vids often offer very comprehensive views. But I like to point out price dynamics is not a function of macro factors.
To make things simple, consider a funny story happening now at a house just a few blocks from mine. This house was sold a year ago at a very high price to the current owner. Since then this new owner tried to rent it out at $9,000 CAD for a few months. When it is not working, he lowered the price to $7,000. And then lowered it again to $5,000. A friend of mine checked out the place and offered to rent it at $4,000, which is already too much (reason below). The owner said he would never rent it out below $5,000. He even boasted that he has a lot of money so he does not need to rent it out at all. This house is still listed for rent today.
Participants in a market do not need to be rational. This owner of the house may not know that other houses bigger than his on the same street all rented out at or below $4,000 before he bought his. Yet he paid a price that top ticked the market with the belief he can rent it out at $9,000. The other properties in the area of similar size are sold at 30% lower than his purchase price lately. He must have his reasons when he made his decision to buy the property at that very high price, no matter how dumb those reasons are. And same goes for his conviction that he will not rent the house below $5,000, he must have his reasons. As long as he has holding power, he does not need to follow what others do.
If everyone is rational in making every decisions, human race should have been gone for a long time. I would say majority of people are irrational beings and majority of their decisions are made emotionally. That’s why it is fun to watch how price moves.
Back to work on my projects.
Have a nice weekend all!