Thursday, July 2, 2020

Morning Note: Systems Thinking...

Good morning folks. You're about to experience, at least at the open, what I'll call a classic what-others-think-others-are-going-to-do rally. 

The linked phrase above was the subtitle to my April 10 post; I recommend you read it (again?) when you have a chance. Here's a snippet:
"My base case that stocks have yet to see the worst is entirely based on data and experience. My illustrating aplenty herein that bear market retracement rallies are the norm is meant to help our readers understand how incredibly risky it is to wade into this snap-back rally as if the bear market is already over. Which, by the way, would make it the shortest on record -- amid the worst economy on modern record! Just seems like a very far-fetched notion if you ask me..."
Still my base case, by the way...

In a nutshell -- in the short-run:
"Keynes suggested circa a century ago that trading (as opposed to, I'll say, investing in) markets is not about assessing fundamentals, it's about what traders think other traders are going to do. And for the more savvy traders, it's about what they think other traders think other traders are going to do."
I'm amazed at the speculation swirling around that U.S. government actors are wading into the equity markets, via futures in the overnight session, as well as in the cash S&P 500 Index near the close of trading on seemingly politically important days. I say "amazed", but I understand the need for a narrative that explains how the market cannot be trading anywhere near, say, -50% from where it was this time last year, amid the worst recession since the Great Depression. And, yes, today's jobs report doesn't change that one iota (more on that to follow).

Yes, fundamentally-speaking, that (a -50+% draw-down) is what we're looking at, at a minimum... Doesn't mean it has to happen, by the way, but that's the risk right here folks...

But here's the thing those conspiracy-obsessed bears (and, frankly, they could be spot on) need to consider; the seemingly nonsensical bullishness in today's market is essentially the stuff of virtually every major bear market throughout the ages.

Recall, in Tuesday evening's note I followed the following excerpt with charts that showed that those past periods referenced by the media were followed by historic stock market selloffs:
"Today's rally was indeed a fitting way to end an exceptionally strong quarter for stocks. The best in fact, according to CNBC, since 1987 for the Dow, 1998 for the S&P 500 and 1999 for the Nasdaq.
Now, forgive me for constantly pointing out that history's biggest moves all-too-often occur either in the midst of, or within the close vicinity of big bear markets. Cases in point being the three periods referenced in today's headlines."
To add fuel to that narrative, here's something I didn't know, but doesn't surprise me in the least.

H/T SentimentTrader:
"What a year it's been for stocks.
The S&P crashed more than -19% in Q1 and surged more than +19% in Q2. Insane volatility.
The only other times in history when this happened?
Q3 1932 (Great Depression)
Q2 1938 (Great Depression)"
Yep, that's exactly what I'm talking about. Which suggests we're simply witnessing human nature -- with or without government intervention into equity markets -- in action...

I'm barely 13% into Albert Rutherford's Learn to Think in Systems and I've already created 14 highlights.

Here are a few that speak to our messaging herein:
"Nobody can be personally held responsible for these problems, although we love finding scapegoats in the political and economic fields. These issues are simply coded in the function of the system."
"At the end of the day, every big change is the result of the cumulative actions (or lack of action) of each and every one of us."
"...a system collects different elements which have relationships with each other; these elements get affected by the actions and interactions happening within the system."
" thinking is “the art and science of making reliable inferences about behavior by developing an increasingly deep understanding of underlying structure.”"  
" thinkers can see both the forest and the trees; one eye on each."
Make no mistake, we strive mightily to be "systems thinkers" at PWA...

FYI Markets are closed tomorrow for the 4th of July. I was about to type that you won't, therefore, here from me, but since I'm planning to spend the morning deep in research, there's a decent chance something will come of it that I'll be dying to share. So no promises 😎...

Anyways, hope you all enjoy the holiday!


Thanks for reading!

No comments:

Post a Comment