Irrational Pessimism
Before moving on to a more complete discussion of ‘the belly of the bear’, I thought a real-time view of ‘irrational pessimism’ might be in order. I have one and it is a doozy. Now a ‘doozy’, loosely defined, is “something unique.” Unfortunately, or fortunately for those left with money to buy, there are many doozy values out there in the market these days.
My doozy of the the day is Energy Transfer Partners (ET-$12.24, NYSE). ET closed last Friday, December 14, at $14.57. It was recommended in last week’s edition of Barron’s Magazine as one its top 10 best investment ideas for 2019. Last week the stock dropped $2.33 on absolutely no news. It currently yields a hair under 10%. Just on a yield basis the stock, when it was recommended last week, was very attractive at an 8% yield versus 2.78% on the 10-yr. Treasury. Why would you sell this stock with a 10% yield and improving fundamentals versus 2.78% on the 10-yr. Treasury when the 10% yield has a possibility of growing over time? Look’s like irrational pessimism to me. Meanwhile, there are situations like this showing up in many other sectors of the market
BTW, that 10-year yield was in place when the Fed moved the rate on Fed funds up to 2.5%. Also, I might point out the yield on the 10-year has dropped almost 1/2 of one percent since the Fed’s last quarter point bump in the funds rate (September 27, 2018). How does this square with all the pundits screaming that the Fed’s aggressive moves would cause a spike in rates that would kill the economy?
A look into the belly of the bear
If you are looking for perspective on the market, a discernment between what is real and what is imagined, I highly recommend the work of Fear and Greed Trader and this week’s post, “The Oracles Have Spoken, Can Anything Save The Bulls?”
He makes the following point in his current article:
“So many investors seemingly HAVE to do something (sell) because recency bias is still in place. The financial crisis and 2008 are still embedded in many minds out there, and the heat is turned up. Many believe they will be burned again, and that is all about FEAR … Every correction does not morph into a bear market, and not every bear market morphs into a crisis. In 2016, the S&P 500 fell 15+%. Just like today many stocks dropped much more than that, and the bull market was declared dead. Of course, when poor judgement took over then it was accompanied by what is around today, FEAR.”
I would concur that FEAR not FACT fills the belly of this beastly correction.
“So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” (Franklin Delano Roosevelt — First Inaugural Address, 1933)

I’m afraid “nameless, unreasoning, unjustified terror” has overtaken the market in the last couple of months. It has been fanned by persistent negative commentary from a parade of media and punditry shouting ‘look out below’ coupled with a strong dose of recency bias.
There is another element at work in this decline…
A crisis in confidence in our national body politic
I touched on this a couple of weeks ago in my post “A ‘bad trip’ down memory lane.” At the bottom in 1974, as we awaited the impeachment or final resolution of the Watergate Coverup, the buyers left the field and the sellers were left with ridiculous bids, which they accepted because they were so fearful. That fear was more understandable then because we were faced with the double whammy of then sky-high interest rates and inflation plus we had a developing constitutional crisis with President Nixon’s resistance to the rule of law.
Today we are up against another such crisis in our national political establishment. This has to be affecting investor psyches. My sense is that we will weather this storm and come out the other side a stronger democracy: or, as FDR so eloquently put it, “In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory.”
The best advice I’ve heard for times like this —
“Be fearful are when others are greedy and greedy when others are fearful.”
Warren Buffett
That’s it for Kort Sessions this year. Best wishes to you and yours for a Wonderful Holiday Season and a Happy, Healthy and Prosperous New Year!
The information presented in kortsessions.com represents my own opinions and does not contain recommendations for any particular investment or securities. I may, from time to time, mention certain securities for illustrative purpose, names where I personally hold positions. These are not meant to be construed as recommendations to BUY or SELL. All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.