Yesterday’s read included a link that I violently disagreed with but still found quite interesting.

Just as retweets are not endorsements, my AM readings include things I find interesting, important, and well-written — whether they reflect my beliefs or not. If anything, finding opposite pieces helps reduce confirmation bias and reduces my time in a limited information bubble of my own construction. We can’t completely avoid that fate but we can do our best to keep it to a minimum.

The link was to James McIntosh’s column “Five not-quite-impossible things the market believes” I subscribe to McIntosh, because he is a) a very good writer who is always interesting; b) plugged into Wall Street gestalt through his perch at the WSJ; and, c) a rational thinker. But rational people are rational about anything market-related. Can disagree — after all, someone has to be on the other side of your trade.

My brief disagreement: It’s not so much “An overheated economy is pushing up inflation and a hot job market is driving up wages;” Rather, inflation is the oddity of restarting a closed economy and the impact of the $5 trillion in stimulus from the three CARES Acts (among other things); One year of WFH and/or generous unemployment benefits allow many workers to upskill and get better jobs and/or start their own firms. Additionally, the bottom quarter (perhaps even half) of wage earners has been driving deflation, not inflation, for decades due to the minimum wage lagging inflation, productivity, corporate profits, and (especially) executive attrition. It was a long overdue reset.

As what the market “knows”. Stop anthropomorphizing Mr. Market. The market doesn’t “know” anything; It is an inanimate collection of investors, a disparate crowd with disparate perspectives risking their capital to generate returns. Markets do not agree or disagree with any of this, they merely reflect a broad spectrum of behavior and occasional misbehavior among its participants.

Prices are more or less “correct” – at least relative to perceived risk with return – during long trends. When large swings occur, the dynamics of that risk/reward ratio change, often leading to losses. Thus I conceive the idea that “Markets are sometimes wrong

Does the bond market disagree with the stock market? I’m not a fan of that framing; My preference is that different investors in equity and fixed income have very different risk tolerances for stocks, time horizons and investment goals. If these two markets seem to suggest two different future economic outcomes, this may be a reflection of those investor differences rather than the outcome of the markets collectively predicting two different things. whose aim is a Return of capital See the world very differently than those who aim to Return of capital.

Other items to mention as debatable:

The new Nasdaq bull market? I don’t subscribe to the 20% meme – I believe it’s a pointless media creation. A 20% discount in a 33% decline is a partial recovery, not a new bull.

Intermediate forecast: We can discuss various forecasts — 10-year bond yields, the Fed funds rate, equity markets, inflation expectations, consumer confidence, etc. — noting that investors as a group do a terrible job of making these predictions. Investor surveys are ridiculous.

uncertainty: The meme that refuses to die. “However, there is no safety limit in this market. With so much uncertainty, investors want more security than usual.” There is always the same degree of uncertainty –0– you rarely know what will happen next. What changes are the circumstances that allow you to lie to yourself about this.


Regardless, the question Mac raises is: “What does the market know (aka the dominant activity of traders) that you don’t?” This is always a worthwhile question for investors and traders to ask themselves.

see more:
Five not-quite-impossible things the market believes
James Mackintosh
Wall Street Journal, August 16, 2022

in the past:
Counter trend? (August 15, 2022)

Change Your Perspective (July 22, 2022)

The Uncertainty Monster (July 21, 2022)

Who’s to Blame for Inflation, 1-15 (June 28, 2022)

Actual Wages (November 22, 2021)

One-sided Market (September 29, 2021)

Elvis (your waiter) has left the building (July 9, 2021)

The Great Reset (June 2, 2021)

The end of the secular bull? Not So Fast (April 3, 2020)

Bull and bear markets

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