FIGHTING THE TAPE

David Rosenberg says it best:

 

“Of course, it is always difficult to predict the future, but so many investors are caught in the moment and are being told “not to fight the tape” and simply play the momentum game. They do not see that the current rebound in the economy is a statistical mirage orchestrated by record amounts of monetary and fiscal stimulus that are simply unsustainable and actually risk precipitating a very unstable financial and economic backdrop in coming years.

From our lens, the rally of the last 12 months smacks of the 1930 snapback, and if memory serves us correctly, the S&P 500 went on to hit new lows in subsequent years and the next secular bull market did not start until 1954. I am sure that all the bullish pundits and ‘tape watchers’ were ridiculing the cautious folks back then — just go and have a look at the Diary of Benjamin Roth and you will see how much giddiness there was over the bear market rally and that the worst was over back then. Meanwhile, the lows were still more than a year away to everyone’s surprise — except those who kept their eyes on the forest, not the trees.

Deleveraging cycles take years to play out, even with massive doses of government intervention. It is clear from the volumes of emails I receive daily that there is frustration among those who think they have somehow missed something important by not being overweight cyclical stocks over the past year. The tone of the responses to my daily musings is eerily similar to the complaints I saw frequently back in 2006 and 2007 — and the advice not to “fight the tape” or to “fight the Fed”. These are just glib after-the-fact excuses for going long the market when nobody really has a good idea on why we should be bullish in the first place.

We hate to break it to the bulls but even with the pleasant rally in risk assets over the past year, there really is nothing to be bullish about when it comes to how the economy is performing now or in the future as all the monetary and fiscal largesse is unwound.”