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The Broken Clocks’ Minute

The Broken Clocks’ Minute

Sometimes the reasons you’re wrong turn out to be the reasons you’re right.

Even a broken clock is right twice a day.

Old Wall Street adage

Anyone who has consistently sounded cautionary or outright bearish notes during the last nine years of relentlessly rising equity markets has been cast aside. Wall Street is bipolar. You’re either right or wrong, and wrong doesn’t buy mansions and Maseratis. Like that broken clock, the so-called permabears have had a couple of minutes when they were right, far outweighed by those 1438 minutes when they were wrong.

Or maybe it’s all a matter of perspective, and it’s the last nine years that amounts to two minutes. In geologic time nine years isn’t even a nanosecond. Perhaps even on time periods scaled to human lifetimes and history, the last nine years will come to be seen as an evanescent flash that came and ignominiously went.

Markets don’t listen to reasons. They’re exercises in crowd psychology and crowds are emotional and capricious. That doesn’t mean that reason is a useless virtue in market analysis, quite the opposite. It’s reason that allows the few who are consistently successful to separate themselves from the crowd and capitalize on its emotion and caprice.

Reason identifies rising stock markets as one symptom of a sugar high global economy. Since 2009, staring into the abyss of debt implosion, central banks acting in concert have promoted furious debt expansion as the finger-in-the-dike remedy. Governments expanded their fiat (aka out of thin air) debt, and central banks monetized that debt with their own fiat debt. Not only did that create loanable reserves within the banking system—private debt fodder—it drove interest rates so low that yield-deprived investors were herded into the stock market. Borrowers won, savers lost.

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