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"The Market Runs On A Buy-The-Dream Mentality"

Tyler Durden's picture




 

The US stock market is up about 9% since June 1 despite weakening fundamentals for US companies and weakening economies around the world, including in Europe. Morgan Stanley's Adam Parker thinks the reason for the rally is investors’ dream that macro policy in the US and Europe will prove to be more effective this time around than in the recent past.

Perhaps the incessant calls of market participants that things must be good given the performance of the market in the face of weakness are simply investors exhibiting the 5 Kubler-Ross stages of grief at a new reality that doesn't cognitively fit with their hopes and dreams...

Is Everyone A Contrarian Bull?

Underneath the market rally there has been some abnormal micro structure, including the fact that mega-caps have outperformed in an up tape, high beta has underperformed, and in the last month energy was the best-performing sector while materials was the worst, despite the 0.83 correlation between the two over the past 40 years.

 

Our stock selection strategy this year has been fairly defensive, focused on mega-caps, and has done pretty well so far despite the market’s rally. A few weeks ago we recommended trimming exposure to expensive defensives and to buy laggards or bombed out cyclicals, and we think there is more to go in that trade. After all, we gained a full year of returns from 10-year government bonds in just one day of equity market trading.

 

Sentiment is the key to the market outlook. I don’t really care that much about the prime brokerage data, the retail investor data, or the put/call ratio, as none of these is really effective at predicting the market’s subsequent return historically. Everyone talks about being pessimistic, but what I hear from my conversations with investors is generally optimism. Most people seem to think earnings are holding up pretty well, that the estimate reductions are a healthy reset, that macro policy will be more effective going forward. I have been told that if the market has held up this well despite all the bad news, just think how well it can do when the news improves. My response to all this optimism is to remind investors that analysts and investors tend to want to be optimistic and that the market runs on a buy-the-dream mentality. I am wary when people claim to be a contrarian bull today. They should not pretend they are alone on an island in their bullishness.


Perhaps BTFD has always meant Buy-The -F##king-Dream after all...

Source: Morgan Stanley

 

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Wed, 08/08/2012 - 08:38 | 2687138 dvsteenk
dvsteenk's picture

Points 1 to 5 in the chart apply to a bear being short squeezed as well

Wed, 08/08/2012 - 08:40 | 2687150 Colombian Gringo
Colombian Gringo's picture

Hang the banksters!

Wed, 08/08/2012 - 09:16 | 2687248 Short Memories
Short Memories's picture

Hope we go through it as quick as Homer Simpson! :)

http://www.youtube.com/watch?v=s6mh8SX_sXs

 

Edit: looking at that chart above again... There's something very correct about "Denial" being the biggest of the jumps in the market today!

Wed, 08/08/2012 - 09:35 | 2687309 I am more equal...
I am more equal than others's picture

Bankers are the new gestapo.  Brutally enforcing the agenda of the elite.  Using Fed money to buy up stocks - when the government owns controlling interest in all the major sources of production is socialism far behind?

 

Wed, 08/08/2012 - 09:09 | 2687244 GMadScientist
GMadScientist's picture

The second 5 points are muppets being left with the bag.

 

Wed, 08/08/2012 - 08:39 | 2687144 Gandalf6900
Gandalf6900's picture

this is precisely the problem when using ZH for investment purposes...ZH is useful only to grasp the reality in the world, not to make profitable investments .

Wed, 08/08/2012 - 08:47 | 2687171 razorthin
razorthin's picture

In isolation, perhaps.  Which is precisely why you need to also study charts.  When we're overbought like this and ZH is reminding you of economic reality, it is your queue to GTFO.  At least until momentum resets.

Wed, 08/08/2012 - 08:47 | 2687173 Dr. Engali
Dr. Engali's picture

Agreed the the Hedge is for a dose if reality, however Tyler puts out very few recommendations, but when he does if you capitalize on them there is money to be made.

Wed, 08/08/2012 - 08:53 | 2687192 Hype Alert
Hype Alert's picture

I think you mean using ZH for trading purposes.  Investments are long term positions and reality is critical for that.

Wed, 08/08/2012 - 11:02 | 2687659 Gandalf6900
Gandalf6900's picture

I agree 100%

Wed, 08/08/2012 - 09:22 | 2687270 jimod
jimod's picture

Exactly: choosing the moment to panic and GTFO, is going to be a market timing moment.  Last Thursaday, I was emotionally ready to pull the trigger, get to cash, discovered the Fidelity 401k has no cash like option, got stymied and deferred action. If I had moved to cash that day, 3% up tick would have been missed.

 

Wed, 08/08/2012 - 08:39 | 2687146 vmromk
vmromk's picture

I too would be buying the dream if the Bernank was backstopping me.

Wed, 08/08/2012 - 08:40 | 2687151 ThisIsBob
ThisIsBob's picture

In all fairness, we have been on a roll since the summer of '32.

Wed, 08/08/2012 - 08:41 | 2687154 vinu02
Wed, 08/08/2012 - 08:48 | 2687178 JustObserving
JustObserving's picture

All scams run on buy-the-dream-mentality.

Wed, 08/08/2012 - 08:50 | 2687186 LongSoupLine
LongSoupLine's picture

 

 

 

1. FED

2. HFT

3. FED

4. HFT

5. NO FED...head fake, crash.

 

fixed it, to eliminate the "emotion"...nice try Margin Stanley, algo's don't know the bullshit "human element" you're trying to push.  fuck off.

Wed, 08/08/2012 - 08:53 | 2687195 SheepDog-One
SheepDog-One's picture

Yea I really believe MS its all about human emoticons and 'Animal Spirits' lol sure.

Wed, 08/08/2012 - 08:51 | 2687190 SheepDog-One
SheepDog-One's picture

OK so heading into elections markets down, gas $4+? Gee thats swell.

Wed, 08/08/2012 - 09:00 | 2687208 Mercury
Mercury's picture

6. 20% plunge (which would only put the S&P @ ~1113)
7. QE firehose

Wed, 08/08/2012 - 08:58 | 2687214 mendigo
mendigo's picture

Everyone agrees the market is going up -
Some because profits are strong
Others because the macro is so horrible.
Ben is keeping a blanket over the shroedinger cat - though somethings smells funny.

Wed, 08/08/2012 - 08:59 | 2687215 SheepDog-One
SheepDog-One's picture

'The reason for 10% rally since June was 'investors' believe plans will actually be effective, this time'....no theyre up because the FED promised free monies daily and HFT's ramped it.

Wed, 08/08/2012 - 09:05 | 2687234 vertexa
vertexa's picture
ATTENTION: September is going to be a huge month for Europe!

Now Alastair Newton, Nomura’s senior political analyst writes that even if the eurozone gets through August, September is the month that will be extremely challenging for policymakers.

Wed, 08/08/2012 - 09:07 | 2687238 mrktwtch2
mrktwtch2's picture

you have to trade this day by day fundamnetals were thrown out the window when they brought back mark to magic accounting in march of 09..will this thing fall 20% again someday..sure but everytime it gets down 17 to 19% the fed does a stick save..look back at the charts of the spx since the march of 09 bottom they have not let a coreection of 20% occur...

Wed, 08/08/2012 - 09:08 | 2687240 otto skorzeny
otto skorzeny's picture

be nice to see FB get in the teens by Friday :)

Wed, 08/08/2012 - 09:19 | 2687262 MrBoompi
MrBoompi's picture

Do stock prices have anything to do with the performance of the companies?  Maybe, if you're lucky or rich enough to own stock that pays dividends.  Ask yourself if FB was ever worth $100billion.

Wed, 08/08/2012 - 09:25 | 2687281 CrawdadMan
CrawdadMan's picture

It's true for the other side (sell) too.

Wed, 08/08/2012 - 10:07 | 2687390 Dareconomics
Dareconomics's picture

A wise man once told me that the market runs on greed and fear, nothing else. Even though we have had a run of bad news, fear has yet to take over the dynamic.

Why should it? The economy is not yet shrinking; it is merely stagnant. Americans may have trouble finding work, but people are not losing their jobs like in 2008 and 2009.

The data currently shows that we are gradually slipping into recession, so the table is set for a market swoon. When we fall into this scenario, some unforeseen negative event is usually enough to push the market down. Keep in mind that the Fed will fight the inevitable tooth and nail, at least until the election.

http://dareconomics.wordpress.com/

Wed, 08/08/2012 - 10:07 | 2687393 Meesohaawnee
Meesohaawnee's picture

damn.. MCD. you made the market red for a half hour in the last 5 days.. Thats not allowed!...ok back to the ramp job.. no problems. here

Wed, 08/08/2012 - 10:17 | 2687427 Blopper
Blopper's picture

When Tyler suggests to sell, it means to buy, in this case.

6 months from now, we will know if this is right or wrong.

Wed, 08/08/2012 - 10:38 | 2687540 Meesohaawnee
Meesohaawnee's picture

what are the signs of a top..?? when bulls feel invinsable? isnt that one?

Wed, 08/08/2012 - 10:59 | 2687593 poor fella
poor fella's picture

It's just like one of those fractal pictures, look closer and the pattern is seen continually as you drill down - harmonic patterns of automatic algorithms.  i.e. An intraday of coke on 7-18 & 7-19 shows what it looks like without the other overlaying trades.

 

Wed, 08/08/2012 - 11:31 | 2687779 OldE_Ant
OldE_Ant's picture

Green across the board.. <sarc> yet again </sarc>   The market is like a clock with no hands that says "The time is NOW".  We are supposed to stare at it and be mesmerized.  I mean no-one is late in NOW time, no-one early, and everyone gets served.

Wed, 08/08/2012 - 14:29 | 2688435 hedgeisforpussies
hedgeisforpussies's picture

bearish and long.

Wed, 08/08/2012 - 14:29 | 2688436 hedgeisforpussies
hedgeisforpussies's picture

flat and nervous

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