Meditations on Market Paradox & Animal Spiritus

Paradox made manifest in the longest standing bull market in history confounds portfolio managers and economists alike. Add to this an ever worsening political atmosphere in Washington and saber rattling with North Korea. Paradoxical, hell yes — because the market seems to love Mr. Trump — but more so, and dangerously so, because the American citizen seems conscribed to accept a deepening post-crisis recovery that has lasted a decade.

When will we stop mourning the end of the free-market and accept the manipulated one as reality?

Acceptance is the first step to recovery — and this means that we must allow that general acquiescence resembles the behavior of loyal subjects, not free citizens. We are now more Commonwealth than the pinnacle of free Republic. With his daughter and son and law serving in tandem as primus inter pares, the President at least exerts the animal spirit (as default) more than his citizens, by spending most of his time out of the White House. We should be thankful that he does not reside too much in a place once occupied by far greater Americans. Sully the stain his rear puts in that chair.

All the while animal spiritus drives the market from several “innovation hubs” whose minions cry “Disruption! Disruption!”, like ancient hawkers in the Roman piazza. The reader must know by now that the simultaneous leavening of bread across multiple sectors translates into higher valuations and an overheated market in general. You can thank Jeff Bezos and Amazon for that. Monopolization by significant acquisition and reduced production and labor cost via AI are now core requirements for the MBA class of 2020.

Good luck, and God bless good children of Orwell!

In the “perpetual post-crisis” economy, margins always tend “mean reverting.” We are going the wrong direction. Investors should pay less for stocks when margins are high, not more. We pay more and make considerably less. The plight of one tech-worker is summed up in her lamentation, “I’ve made a career out of not getting my needs met.”

Yes, indeed.

“Margins,” which is a fancy — not so fancy way of framing “profit” means that because of reductions in cost due to “disruption” — corporates are making more money than ever — and investors are making profits if and only if — there is no discount for beginners. Sorry.

The bright side of things, of course, remains in the markets where the landscape is sun-drenched, and the people (thankfully) have more vowels than consonants in their last names. Namely the emerging markets. Enthusiasm there cannot be dampened by a weak dollar and low-interest rates. The MSCI Emerging index had gained a whopping 23% this year. Not bad earnings for the not so tech-savvy agro-markets of the developing world. I’ll take metals and real commodities in the long-run over tech-stocks any day of the week. I don’t care how hot or real your virtual your reality is.

I prefer hard assets.

If you sit down with a macro-strategist, they will suggest we are not in-between worlds; we are “post-market.” Meaning that the current overvaluations and heat are not “transitionary” — they are the new norm.

Do not be afraid — panic if you must.

I can suggest a film to illustrate this point if it eludes you. I advise you to rent “Zootopia.” Yes, there is a cute, neurotic bunny, and a wry, sarcastic fox, but more importantly, the film aptly demonstrates what happens when “predators” are infected by a rage-inducing poison, namely capital, or in the case of the movie, “purple flowers.”

Animal spiritus rules the markets, and I am concerned that the prey does not realize that they are about to be eaten, again.