According to Registered Investment Advisor (RIA), Jeff Miller, they are:
- Making it all about Oil. This viewpoint is sufficiently prevalent that is has created excessive pessimism about economic growth and recession potential.
- Making it all about the Fed. It is fun for most to criticize Fed policy, but not very useful. Most of the actual predictions (hyperinflation, market collapse at the end of QE) have not occurred.
- Making it all about valuation. The most popular methods of market valuation help to keep the average investor scared witless (TM OldProf Euphemism). (complete article)
Miller’s conclusion, vis a vis the ‘Three Mistakes’, “Much of the daily news flow is simply noise, distorted by simple mental models used by most participants.” I concur! Beautifully concise! Jeff has summed up over 200 kortsession.com posts in three bullets. I love it when people agree with me. I commend his work to you.
“The Beat Goes On”
Savita Subramanian (BofA Merrell Lynch Head of Equity and Quantitative Strategy), who, interestingly, up until recently, was a pretty consistent bull on the market (claiming her style to be contrarian) appears to have fallen into the same trap.
Here is a quote from a segment of CNBC’s Fast Money last Friday:
“We are in a profits recession. There are no two ways about it, said Subramanian, whose price target on the on the S&P 500 of 2000 is among the lowest on Wall Street. She is also concerned about how Federal Reserve monetary policy could affect stocks.
You have the Fed embarking on a long, slow tightening cycle. Tightening into a profits recession doesn’t sound like anything to throw a big party about….” (complete video)
Though she omits oil prices as a brick in her ‘wall of worry’, Ms. Subramanian concludes that, right now, ‘there are no fundamental underpinnings for the rally’.
Surprisingly, no one on the ‘Fast Money’ challenged Subramanian’s profits recession contention, as it would seem to be confined to energy, materials and companies with significant earnings that come from abroad. Markets data service, FactSet pointed out late last year, ex these negatives, S&P profits were tracking up 10+%. It is hard for me to believe that the positive effects of lower energy and commodity prices, as well as a slightly weaker dollar, don’t combine to provide a tailwind for the economy this year.
What’s your take?
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