Josh Brown put together a nice list of reasons to be bullish here. The first three regarding sentiment/pessimism really jump out at me. Can you ever recall a period where everyone clung to negative news and crisis just persisted endlessly? I don’t know. Maybe you’re Richard Russell and you remember the Great Depression. But if you’re like most of us, this negativity just feels like it’s become the baseline scenario. Hopefully it’s a sign that things are overdone. But there’s also the risk that things just aren’t getting better any time soon. I’m not in the recession camp, but I’d be lying if I said the risks weren’t skewed to the downside on the economic side. I hope I am wrong. And as a long-term optimist I certainly hope all this negativity is wrong. Anyhow, here’s more from Josh:
10. Pessimism is now the base case scenario. This means that any positive news, from any quarter, should have an outsized effect on asset prices. Take housing for example – a more important cog in the wealth effect wheel than any other facet of the economy (housing is 10X more important to American confidence, employment and spending than the price of the Dow Jones Average). Anyway, the housing market is alive. It’s good not great, but it’s on the upswing and no one believes it. What happens when they do?
9. The negatives are more well-known than ever. My dad can quote the debt levels of several sovereign countries and his secretary can tell you the yields on their bonds. Remember that civilians become experts in things at major inflection points – often just before the turn. Think about the conversations you find yourself having with non-market people about how bad things are about to get.
8. The fetishization of bond funds is rounding the corner, headed down the home stretch. In the second quarter just ended, the iShares investment grade corporate bond fund ($LQD) had the highest of all ETF inflows at $2.5 billion, the runner-up was Vanguard’s total bond index ETF ($BND) with $2 billion. Here’s the cover of Barron’s this week, after a year of record outflows from equity mutual funds and record inflows for bond funds.
See his full list here.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.