Why the Market Suckered So Many Folks... Also, Are Things Starting to Loosen at Retailers?

There's something about this market... You could see what happened coming many miles away, long before the bottom fell out. With that being the case, why did so many investors – some really smart ones among them – miss it? The answer is simple: the "human factor." I blame a lot of things on the […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] Why the Market Suckered So Many Folks... Also, Are Things Starting to Loosen at Retailers? By Herb Greenberg --------------------------------------------------------------- [The 'inflation-proof' stock no one's talking about]( Legend who bought Amazon at $48 and Apple at $0.35 is pounding the table on a [$4 inflation-proof play](. --------------------------------------------------------------- There's something about this market... You could see what happened coming many miles away, long before the bottom fell out. With that being the case, why did so many investors – some really smart ones among them – miss it? The answer is simple: the "human factor." I blame a lot of things on the human factor, such as financial fraud. It often boils down to little more than a thing that some people do when a bonus is dangled in front of them. They pull out all the stops, and then some... because they're human. The same could be said for why so many investors failed to heed the signs that this market was on borrowed time... They didn't... because they're human. Or they're too smart by half... or too smart for their own good... or not as smart as they think they are. It's one thing to claim to be disciplined, but it's another to actually be disciplined in the heat of the moment, or at that point in the market when the guy at the car wash is showing you his stock portfolio. All of this is easy to see and say after the fact, of course. But there were some people who were trying to speak sense to the insensible during the insanity. Among them was legendary money manager Howard Marks of Oaktree Capital Management, whose regular "memos" over the past 40 years have become required reading among investors in pursuit of voices with common sense. --------------------------------------------------------------- Recommended Link: [Berna Barshay: 'My No. 1 stock to own over the next 3 years']( Over the next five years, billions of dollars are heading into one specific corner of the market, regardless of what's happening in the markets, what the Fed's doing, or whether war is still breaking out. And Berna has found the one company to disrupt this $300 billion industry – [making it her No. 1 stock to own over the next three years](. --------------------------------------------------------------- Which gets us to... humans. In his latest memo, headlined "[Bull Market Rhymes]( Marks explains the role he believes humans play in what we just saw in the market – more to the point, the psychology, or as he puts it... I think the substantial influence of psychology on investors' decision-making largely explains the market's gyrations. Marks then goes through the psychology behind a bull market and how it feeds on itself, saying... Topping the list of companies that fed investors' excitement in 2020-21 were the FAAMGs [Facebook parent Meta Platforms (FB), Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), and Google parent Alphabet (GOOGL)], whose level of market dominance and ability to scale had never been seen before. The dramatic performance of the FAAMGs in 2020 attracted the attention of investors and supported a widespread swing toward bullishness. By September 2020 (that is, within six months), these stocks had nearly doubled from their March lows and were up 61% from the beginning of the year. Notably, these five stocks are heavily weighted in the S&P 500, so their performance resulted in a good overall gain for the index, but this distracted attention from the far less impressive performance of the other 495 stocks. The performance of the super stocks inflamed investors' ardor, enabling them to disregard worries regarding the persistence of the pandemic or other risks.  Source: Goldman Sachs The raging success of the FAAMGs created a luster that reflected positively on tech stocks in general. Demand soared for stocks in the sector and, as is usual in the investment world, strong demand encouraged and enabled supply. One notable barometer in this case is the attitude toward IPOs [initial public offerings] from unprofitable companies. Prior to the tech bubble of the late 1990s, IPOs from companies that didn't make money were relatively rare. They became the norm during the bubble, but their number sunk again thereafter. In the 2020-21 bull market, IPOs from unprofitable companies experienced a big resurgence, as investors easily made allowance for tech companies' desire to scale and biotech companies' need to spend on drug trials. We know what happened next... And it'll probably happen over and over, because as Marks wisely points out, the lessons of the most recent cycle are similar to those of prior cycles. Or as he says... Their causes are largely psychological, and the way psychology works is unlikely to change. That's why I'm sure that as long as humans are involved in the investment process, we'll see them recur time and time again. (My paraphrasing of Marks' memo doesn't do it justice... I highly recommend you read [the whole thing]( to get the full flavor, then tuck it away to pull out next time you get tempted.) Moving on, are supplies starting to get back to normal at retailers? Here's this from a friend – a former hedge fund analyst, who was responding to my [May 31 Empire Financial Daily]( on why folks who are looking at why there might not be a recession should check out freight traffic... I would agree. Last night I ordered an outdoor table from Pottery Barn because a) they were promoting a sale for the first time in memory, b) stuff was actually marked down for the first time in memory, c) they actually had product in stock for the first time in a year. I conclude every retailer lost their mind trying to meet demand and double ordered last year, and they are just burning through it now. The inventory correction (every recession is fundamentally an inventory correction) is happening, and probably over by year end. I had posted that on Twitter (TWTR) and somebody else chimed in... Made a quick decision to redo a bath because I found a contractor with space. Ordered a vanity. Figured a month or more wait. Nope, in stock and delivered in 3 days. And this... Retailers have placed holiday orders already. Given the shipping snafus and the need to get goods on the water by June, they have likely over ordered again... Enough talk of recession. Deflation, anyone? As always, feel free to reach out via e-mail by [clicking here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Herb). And if you're on Twitter, feel free to follow me there at [@herbgreenberg](. My DMs are open. I look forward to hearing from you. Regards, Herb Greenberg June 3, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. 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