It’s Cool To Be A Bear. Do You Want To Be Cool?

Earlier today, I asked the following question: “Where’s The Bull Market?

My point was simple. Central banks have indeed driven asset prices into the stratosphere and a kind of needlessly contrarian collective gamble has driven oil back near $50 even as the fundamental picture is so bad that crude is being stored offshore in tankers at a loss. The bottom line: it’s not clear to me where the value is at this juncture. Even gold has rallied hard of late.

But I think it’s important to keep perspective. You shouldn’t be bearish for the sake of being bearish. That’s a fool’s errand and it’s something I’m seeing more and more of these days.

I do try to take a data-dependent (unlike the Fed) approach to thinking about markets, but at heart, I’m a macro guy. You have to take a holistic approach or else you’ll miss something. As Aristotle once said: “The whole is greater than the sum of the parts.” Think, for instance, about the macro data out of developed markets over the past several years. Clearly, global growth and trade have been subdued and that weakness seems to have become structural and endemic as opposed to cyclical and transient.

But guess what’s happened to the permabears during that stretch? That’s right, they’ve been wiped out. Decimated. Dead wrong.

“Well, we’re right in the long run” doesn’t exactly excuse that. If betting on the demise of markets were an exercise in long-run forecasting, it would be just as easy as betting on the long-run outlook for any given trader: in the long-run, neither traders or markets will exist. In the meantime however, a whole lot of people will make a whole lot of money, and being one-way bearish has been the worst trade in history over the past eight years.

And that brings up an interesting question. What should we make of what certainly seems like a sudden bearish shift?

As I noted earlier, investors are suddenly terrified of volatility - even though the VIX is trading below 15. Everyone is suddenly scared to death of central bankers being exposed as inept. As I said a few hours ago, it’s hard to find an asset class that’s undervalued. Oil has rallied. Gold has rallied. Fixed income is riding a decades-long hot streak. Stocks have obviously staged an incredible rally off the 2009 bottom. If you’re a gifted FX trader you can make a fortune in today’s markets, but there’s a whole lot of risk there. Everything looks rich and everyone seems to be calling the top. Consider the following from Bloomberg’s Richard Breslow for instance:

“Yesterday’s PMI reports painted a dour, if largely ignored, picture of how the boots on the ground people are faring at the moment. They covered manufacturing in the U.S. and Japan and the composite figures for Europe.

“It’s interesting how eagerly awaited reports, appreciated for their timeliness and forward-looking nature can be explained away when they don’t fit the narrative.”

Yes, Richard, it is. It’s also interesting how suddenly, everyone who, like you, works for a major news wire, seems to be calling attention to each and every bearish macro data print. That’s quite a 180 from six years ago when these very same news wires were singing the praises of the recovery.

Here’s another excerpt from Breslow’s Tuesday missive:

“Lots of people try to make the specious argument that manufacturing doesn’t matter to the U.S. economy anymore. True, it’s much smaller than it was. But it’s not a coincidence that GDP and this index topped out within months of each other in the summer of 2014.”

Here’s the thing: manufacturing doesn’t matter to the US economy. I had this conversation over dinner just two nights ago. No one is going to “bring manufacturing jobs back to America.” There won’t be a “manufacturing renaissance” no matter who is President. The US is a service-based economy. Period. The dynamics of the global economy have rendered the US uncompetitive in manufacturing and that’s not going to change.

Pointing to the continual decline in American manufacturing is like pointing to the decline in the use of horses for transportation in the era of Henry Ford. It’s a structural shift in the economy. The country will either deal with it or it won’t. It’s not something to continually bemoan.

So I wonder, when it comes to markets, what the wholesale shift in rhetoric means. I’ve been a skeptic and, generally speaking, a bear for years. And I’ve been wrong. Now, the very same people who for years were market cheerleaders are outspokenly pessimistic.

It’s cool to be a bear these days.

But it isn’t cool to lose money.

And if you’ve been a bear over the past eight years, you’ve lost your shirt. Is now any different?

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