All waves fall on themselves. Some peter out slowly and evenly over soft sand. Others crash down in violence and fury over fire coral reefs. But every wave ends and the wave in the stock market will end too.
I grew up surfing. I know a fair amount about waves.
Waves are just energy. Light waves, microwaves, ocean waves, waves in the stock market. Energy moving through a medium. It peaks. It dissipates. It regathers. It does it again.
The Fed is convinced that it can create an economic wave that doesn’t break. A wave with no crash. It believes that it can create an ongoing and eternal boom. It is wrong. A wave, nature, just doesn’t work that way.
But the human animal has an amazing propensity for hubris. We are very good at deluding ourselves. We are very good at believing that “this time it’s different.” We believe, even though we know, we know, that we are wrong.
This is another one of those times. Enjoy the bull market in stocks while it lasts. Nothing wrong with that, but don’t think it will last forever. And remember if things go bad, you will likely be the last to know.
The contrarian-based worry about this sentiment situation is that the market is being held up more by a happy mood than by a solid assessment of the fundamentals. As a result, the market will fall all the more precipitously when investors’ mood begins to sour — as it eventually will.
And though investor psychology is difficult to analyze, we know investors are notoriously fickle. Will it be paralysis in Washington over the debt ceiling that causes them to become less exuberant? A worsening of the Syria mess? Most likely, it will be something that comes out of left field that isn’t even on our radar right now.