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Weekend Reading: Willful Blindness

Written by Lance Roberts | Aug 12, 2016

Willful-Blindness

Despite deteriorating economic data, the market continues to cling to recent levels of over overbought, overextended and low reward/risk outcomes. SP500-MarketUpdate-081116

The problem for individual investors is the “trap” that is currently being laid between the appearance of strong market dynamics against the backdrop of weak economic and market fundamentals. Ignoring the last two to chase the former has historically not worked out well.

As David Rosenberg penned for the Financial Post:

“Okay, this really is one weird market.

I’m quite sure I have not seen such levels of confidence on one hand, and cognitive dissonance

Maybe they think the Fed goes, but it will be a mistake and send the economy back into a deflationary downturn.

But how can that be the case when this same ‘smart money’ crowd has built up a net speculative long position in the S&P 500 to the tune of 28,809 futures and options contracts?

The “greed” factor is also highly evident on the Chicago Board Options Exchange (CBOE) where net speculative shorts on the VIX have reached 114,603 futures and options contracts, a level reached only once before. The bull market is in complacency.

But this begs the question, if there is no fear, then how is it that the net speculative position on gold on the COMEX is back near an all-time high of 326,264 futures and options contracts?

So you see what I mean by cognitive dissonance, right?”

As I stated last Friday:

“The great global dichotomy, of course, is that while Central Banks have been flushing the globe in liquidity, suppressing interest rates and bailing out banks as fast as possible, the mainstream media continues to tout the strength of the economy.

If the economy is growing, and there really is ‘no recession in sight,’ then why is there such a panic by the BOJ, BOE and ECB to expand their accommodative programs? Why isn’t the Fed raising their benchmark rates? Why are earnings deteriorating across sectors on an unadjusted basis?”

In other words, the only explanation for there being “no recession in sight” is simply the “willful blindness” not to see it.

Here is what I will be reading this weekend.


Interesting Stuff

 


Markets

 


Always Good To Read

 


“The combination of power, optimism, and abstract thinking makes powerful people more certain. The more cut-off they are from others, the more confident they are that they are right.” ― Margaret Heffernan

Questions, comments, suggestions – please email me.

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Lance Roberts

Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of “The Lance Roberts Show” and Chief Editor of the “Real Investment Advice” website and author of “Real Investment Daily” blog and “Real Investment Report”. Follow Lance on Facebook, Twitter, and Linked-In

2016/08/12
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