Are we in the midst of a bear market, generalized recession, or just a period of correction? I argue for the latter, as the drops we’ve seen in the worldwide financial markets are quickly followed by significant upticks. Trending downward? What constitutes a trend? As with so much else in life, any market cycle has to be experienced going forward, but can only be understood looking backward.
Amongst market analysts, though, I am sure the bears will always outnumber the bulls, except in the strongest and longest of bull markets. The why of this really has more to do with human nature than it does with any particular analytical expertise. This is what I would term the ‘happy to be wrong’ syndrome. A negative view expressed by anyone can always be tempered with the phrase, ‘I am happy to be wrong.’ Well, of course you would- ‘This plane is going to crash, but I am happy to be wrong.’ The fact is, the use of the phrase makes one right whatever happens. If, for instance, a company fails to perform, or an entire market tanks, the naysayer is looked upon as a sage. If nothing of the sort happens, as is often the case, everyone is overjoyed, and, in their joy, the marketplace Cassandra is forgotten. He’s happy, anyway, at least to have been wrong.
We’ve had an ongoing discussion about the housing market, battered if not necessarily in the market place, certainly in the press, and statistics about housing sales, housing stocks, and current market price declines are so varied it has been impossible for me to keep track of them. Moreover, in this sound bite world, nothing more than a statistic prefixed by a three or four word explanation is ever given. As statistics vary so wildly from time to time, I have to presume that different criterion have to be used in their calculation. As I am sure some of you do, as well, I closely follow a couple of particular real estate markets- not by reading about them in the newspaper, but by subscribing to a couple of research letters published by people I trust. Both are issued monthly, use base years and numbers as their constants in calculating statistical comparisons, and both cover a defined area with roughly 1 million residents and 750,000 housing units. And, both abstracts are, each month, in excess of 50 pages in length. As there are 300 million people in the United States, I would bet there are hundreds of similar reports published each month. Are these all read by any one analyst? As so-called subprime mortgage hedge funds were sold by the representations of third party rating services, I suspect that most analysts are deriving conclusions from the briefest of brief statistical abstracts. As the bull market in mortgage securities- so-called collateralized debt obligations- was driven by a limited understanding of the underlying investment, it seems highly unlikely that there has occurred any analytical spot-changing now. What we have, basically, is a preponderance of naysayers who are reporting selected statistics gleaned from others.
Perhaps a gloomy outlook is fashionable at the moment- it’s an election year, and economic gloom and dissatisfaction provides the most basic impetus for making a political change. Are we then in the midst of a manufactured market, with market turmoil engendered to ensure a political outcome that will return market stability? Cynical this sounds, and although this sort of thing has happened before, I am happy to be wrong.