Our in-house Chartered Market Technician and Certified Financial Technician, Jared Coffin and I were reviewing recent economic and market data. He brought to my attention that we are living in a type of upside down, bizzarro world right now.
For instance, yesterday, December 21 was the highest put/call ratio in history. For every call option placed there were two put option orders placed. A call option is the option to buy an investment and a put option is the option to sell an investment. So a call is for bullish people and a put is for bearish people. That means that yesterday some very smart, very wealthy people were very bearish. Jared explained to me that is very bullish. In other words, if everybody is negative about the market, the contrarian view is that there’s nobody left to sell and it’s time to buy. It’s time to be bullish.
Are you still with me?
Furthermore, Gross Domestic Product numbers came in higher than expected over the last week. The market wasn’t happy. Does that make sense? If America is working harder and smarter, the market should be thrilled, we should wave our flags and pew, pew, pew into the air screaming Murica!!! But now, the markets (both bonds and stocks) don’t like the idea of an inflation-wary Federal Reserve raising rates to calm down runaway price increases. So good economic news is bad. Make sense?
Personally, I’m guilty of this backwards thinking as well. The typical 60/40 balanced mutual fund has taken a beating this year. That’s because bonds have declined in a rising rate environment at the same time that stocks were giving back gains. In fact, it’s the worst corporate bonds as an asset class has done in recent memory. You may know, I’ve never been big fan of bonds, simply because low interest rates were bound to rise, leading to this exact scenario. And now, as I stand over the Ozymandias fixed income hellscape, I’m as happy as a clam at the generational buying opportunity that stands before my clients.
There are more examples, but I think you get the point. Making financial decisions takes some counter-intuitive thinking.
If you'd like to talk about how to navigate this interesting time in the markets, click here.