Watch Out: FOMO Trading Is Back

How to avoid following the herd off a cliff… [Morning Reckoning] January 02, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Watch Out: FOMO Trading Is Back Baltimore, Maryland January 02, 2024 [Greg Guenthner] GREG GUENTHNER Good morning Reader, FOMO is finally back! Fear of missing out is one of the most powerful forces in the market. When conditions are just right, FOMO latches onto our lizard brains, leading to terrible investing decisions. We chase overbought stocks, fall for dubious stories and scoop up shares of some of the most risky, speculative garbage companies we can find. What could possibly go wrong? Well… everything, of course. To be fair, I’m not knocking stock market speculation. After all, I’m a trader. I have no trouble buying less-than-perfect stocks or flipping shares of fundamentally challenged companies. Different stocks and sectors fall in and out of favor all the time. And improving or deteriorating fundamentals have little to do with short-term performance. Market conditions and narratives are the main determinants of how a stock will perform over shorter time frames. Consider the broader market narratives and how they’ve evolved since late 2022… Many stocks — including mega-cap leaders Apple Inc. (AAPL) and Tesla Inc. (TSLA) — were in free-fall in December. Investors had endured a painful correction lasting the entire year. Not only were the averages in bear market territory — the popular Covid Bubble stocks had been decimated. Anyone heavily concentrated in these names was sitting on huge losses — far deeper than the 20% correction in the S&P and 30% drop in the Nasdaq Composite. It’s safe to say that most (if not all) investors were less than enthusiastic about stocks heading into 2023. Then, a funny thing happened. The market rallied. A few weeks later, stocks were still zooming off their lows. But no one believed it. We’ve talked about these early-stage bull moves before: the disbelief rallies. After a few failed relief rallies leave overeager buyers stuck in their trades, most folks simply give up. Then, when a rally does finally stick, the market’s cried wolf so many times that most investors simply don't trust the move. They sit on the sidelines and wait for the market to prove itself. This perfectly describes the market action during the first quarter. Most analysts, fund managers, and individual investors simply did not believe that the rally would last. Instead of buying stocks, they waited for the market to roll over. But the averages weathered their first meaningful pullback in February. They also survived a banking crisis the very next month — and even rallied into the second quarter. In fact, every single time the so-called experts said the market would roll over, we saw another rally. Now we’re finally seeing investors come around to the idea that the market has turned a corner. But not everyone is happy about it. [Critical Customer Service Notice]( [Click here to learn more]( Hi, this is Dustin Weisbecker, the Director of Customer Service for Jim Rickards. And I’m trying to reach readers about [a massive change we’ve just implemented to Strategic Intelligence .]( As a reader of Jim’s work, this change could have a direct impact on you and your subscription. What’s more, this change will be going into effect immediately – in fact, you may have already noticed it. To bring you up to speed, I just recorded a short video explaining all of the important details about this upgrade. [Click here now.]( [LEARN MORE]( The Chase is On! “People will hate on a stock-market rally,” a recent Bloomberg Surveillance note begins, “They'll say it's fake, or just a handful of tech stocks making everything look better than it is. But the bottom line is, the S&P 500 and the Nasdaq — and especially the Nasdaq 100 — are up significantly, despite all the naysayers, and that alone is enough to drag cash in.” There’s that FOMO talking again… It’s not only retail investors getting “dragged in” to this rally. The pros are also getting sucked back into stocks. Fund managers who missed the earlier stages of the rally that began in January are significantly lagging their benchmarks. If you’re managing money and you’ve been twiddling your thumbs worrying about elevated valuations in this group, you might be in a bit of trouble here. The runaway performance of the big tech names has created a hold your nose and buy situation that’s powering this rally higher into the summer months. As Citigroup’s Stuart Kaiser explains in that very same Bloomberg piece, “We are reluctantly staying in the tech trade.” In other words, get onboard — or your job might be in jeopardy. Now, we have the strongest stocks attracting even more attention. Mega-cap tech, semiconductors and artificial intelligence names are rolling as summer approaches. Can the good times keep rolling? Or will these trends run into some trouble as the summer heat approaches? Buying Into the Summer Doldrums Now that the herd is backing up the truck and pushing many market leading stocks to new 52-week highs, we should take a moment to see how the S&P fares during a typical pre-election year. Don’t get too hung up on the S&P’s performance perfectly mirroring the pre-election year composite. The trend is what counts. And so far this year, it’s closely followed a typical pre-election cycle. Next, take a look at how the composite behaves at the end of the second quarter. In a pre-election year, the S&P typically tops out at the end of June and remains in a range until an end-of-year push in November - December. Will the market follow the blueprint this year? I doubt it will match up perfectly. But the composite does give us a general idea of what we could expect as this rally matures. The market loves to get everyone bulled up at the wrong time. No one wanted anything to do with stocks when they were ripping in January. Now, they’re buying with both hands into a potential short-term top. Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [The 2 AI investing traps revealed [must read]]( Investor and entrepreneur James Altucher made millions during the crypto boom. Many “experts” are now saying… [Artificial Intelligence opportunities could be even bigger .]( But don’t believe the hype. Before you invest one penny in AI… See James reveal the [2 AI investing TRAPS]( that will doom many investors… Yes, making money from AI SHOULD be easy… But most AI investors will fall flat on their faces. Because they don’t know the 2 AI investing TRAPS. [ See the 2 AI investing traps here now ]( [LEARN MORE]( In Case You Missed It… The Rabbit Ears of Unhappy US Taxpayers Sean Ring, Editor [Sean Ring] SEAN RING Good morning Reader, I’ve lived in Italy for almost 2 years and still can’t speak Italian fluently. My six-year-old son, Micah, speaks excellent Italian, and his friends’ parents, my peers, are more than happy to ignore me and talk with him. It saves me a job. But to improve, I started translating words and phrases I often use. It’s a common strategy to improve speaking ability. A few Fridays ago, I stood in Piazza San Secondo with my Brazilian-Italian friend, Angelo, whose son plays with Micah. We speak terrible Italian to each other because he’s got to translate his Brazilian-Portuguese into Italian, and I’ve got to splutter through English in my head before any semblance of Italian comes out. We both just bought houses and got onto the subject of finances. Shaking our heads, Angelo asked me how I was doing. I said, “Niente ma orecchie di coniglio.” He looked at me quizzically, then his eyes widened, and then he burst out laughing. Nothing but rabbit ears. A man with rabbit ears. Every married man knows exactly what this phrase means mere seconds after hearing it for the first time. Usually, it’s with respect to a spendthrift wife, a recently made tuition payment, or a gigantic bar bill. But now, married or not, male or female, we’re all up shit’s creek together. While Paul Krugman can’t understand why people are so down on this allegedly thrilling economy, it’s easy to see why. Everyone’s already broke. A Few Facts First A few days ago, Visual Capitalist published [this excellent infographic on Global Wealth](. I’m only showing the top ten. Click on the link to see the whole thing. The two stats used are mean and median. Mean is a simple average. We take the total wealth and divide it by the total number of adults. However, averages are prone to big outliers. In this case, Warren and Charlie, Kim and Kylie, LeBron and Magic. These billionaires pull up the average. That is, the number is positively skewed. In the US’s case, the mean is much, much higher than the median partly because of the wealth inequality inherent in a capitalist economy and mostly because of the naked cronyism, enabled by an extravagant central bank and actioned by an irresponsible Congress, that passes for capitalism in America nowadays. Right now, the average adult has about a $551,400 net worth. Not bad. But the median US adult — the one in the middle of the pack - has only a $107,700 net worth. From [Visual Capitalist]( Many experts believe that median wealth provides the most accurate picture of wealth since it identifies the middle point of a dataset, with half of the data points above this number, and half falling below it. In this way, it is less impacted by extreme values and gives a good representation of the “middle of the pack.” The number of US adults is 257 million, assuming Visual Capitalist used the 2020 census and counted over-18s as adults. If that’s the case, 128.5 million adults have less than $107,700. And most of that $107,700 will probably be home equity. When you hear about “the hollowing out of the middle class,” this is precisely what people mean. But that’s not all. Let’s look at the big three economic numbers: GDP growth, inflation rate, and unemployment rate. For this, we’ll enlist the help of John Williams of [Shadow Government Statistics](. GDP Growth My friend and colleague Doug Hill posted this on our editorial channel, and I just laughed. First, I had forgotten about John Williams. He’s a Reagan-era economist who was disgusted with how the USG fudged the numbers. Williams became very popular after the 2008 crash. Here’s his estimate of GDP versus what the USG tells us: [Williams writes]( The SGS-Alternate GDP reflects the inflation-adjusted, or real, year-to-year GDP change, adjusted for distortions in government inflation usage and methodological changes that have resulted in a built-in upside bias to official reporting. Concisely, Williams’ estimate of US GDP growth hasn’t registered a positive number since before Covid. So the whole “economy is growing” fairy tale turns out to be just that: a fairy tale. Inflation Rate While we were panicking about a 9.2% inflation rate, Williams was decidedly more pessimistic: [According to Williams:]( The ShadowStats Alternative CPI-U measures are attempts at adjusting reported CPI-U inflation for the impact of methodological change of recent decades designed to move the concept of the CPI away from being a measure of the cost of living needed to maintain a constant standard of living. At its peak, Williams had inflation closer to 17%. Right now, his work suggests that inflation is still in double digits. That’s a claim many would agree with. Unemployment Rate And unemployment isn’t nearly as rosy as Krugman thinks. We’re still hovering around Depression-era numbers if you believe Williams. Many people do. [Williams explains (bolds mine):]( The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers. The U-3 unemployment rate is the monthly headline number. The U-6 unemployment rate is the Bureau of Labor Statistics’ (BLS) broadest unemployment measure, including short-term discouraged and other marginally-attached workers as well as those forced to work part-time because they cannot find full-time employment. But the USG’s efforts to fix the situation border on the farcical. Rearranging the Deck Chairs on the Titanic Before I get to the USG, let’s enjoy a bit of comedy. No, not from Paul Krugman. We’ve abused that privilege enough. This comes from Greg Ip, former Fed watcher and now editor at The Wall Street Journal. In his [Capital Account column]( the sagacious Ip wrote this: I suspect a lot of pessimism about the economy is “referred pain.” Just as part of your body can hurt because of injury to another, pessimism about the economy may reflect dissatisfaction with the country as a whole. Lately, there has been a lot to be dissatisfied about: intensifying political and cultural conflict and intolerance, the pandemic, the border, mass shootings, crime, war in Ukraine and now the war in the Middle East. In other words, Americans are so worried about the wider world that they feel it in their wallets. Really? In my experience, most Americans don’t give a rat’s ass about countries they can’t find on a map… But they are incredibly astute about how and when their government is picking their pockets. And just when you thought you were getting relief that Congress has forgotten about Ukraine, along comes Israel. [Zero Hedge]( summarized it succinctly: - The government will run out of money (again) in roughly two weeks, requiring Congress to act (again). - According to Democrats and GOP Neocons such as Mitch McConnell and Lindsey Graham, America needs to send billions of taxpayer funds to both Israel and Ukraine, and won't consider any legislation that doesn't combine the two. - House Republicans under newly minted Speaker Mike Johnson (R-LA), as well as a group of Senate Republicans, want Israel aid separated from Ukraine aid, while the Biden White House wants to jam a $105 billion foreign aid package ($14B to Israel, $60B to Ukraine) through Congress. - The House's plan (if they can even pass it) to separate Israel aid from Ukraine aid is DOA in the Senate, while both the Senate's combined package and the Biden admin's package is DOA in the House. - The House and the Senate also need to pass 12 appropriations measures for 2024, or face a 1% across-the-board cut on defense and nondefense spending, per the debt ceiling bill passed earlier this year. In an update, Biden already vetoed the House bill that would have (GASP!) separated Israel from Ukraine. But the real reason Biden was pissed off was that the GOP planned to offset $14.3 billion in aid to Israel by reducing the IRS's roughly $60 billion boost from the Inflation Reduction Act ($80 billion less negotiated cuts). I have to say, “Nice try, Mr. Speaker. Well played.” But what I don’t see is any help for everyday Americans. Where’s a middle-class tax cut? Where’s relief for Maui or East Palestine? And where the hell is increased funding for the border? All these taxpayer dollars are going out of the country, and none is going for inward investment. Wrap Up Unless and until the citizenry wakes up, this will continue. If I were Joke Biden, I’d take advantage until I came out of the Oval Office feet first. As for the Congressional gerontocracy, they’ll keep going until they get Feinsteined. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Greg Guenthner] [Greg Guenthner, CMT,]( is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg's charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. 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