Too Hot, Too Cold And The Duck Explodes – Faustian Market Extremes

It’s so hot in Australia they had to add a new color to the weather map – purple, for 54.2 degrees Celsius.

US braces for record-breaking chill… from a polar vortex !

And, the famous giant yellow duck explodes just hours before the New Year, in Taiwan.

There was an interesting piece I came across the other day about how extreme we have become, for equity investments to last just 5 days on average in 2010.

What has the world come to ? Adrenaline junkies going from one high to another. People want results immediately, pronto, without having to wait for revenues to show. The minute the stock gets an upgrade, off it goes, even before the results show for it.

So much for all the dooms day talk, the markets are resiliently holding on to their 2013 optimism. That should set the stage for the extremes to continue, plunging us headlong into a potential rally after this Friday’s US non-farm payrolls and into the FOMC on the 30th of January, the first day of the lunar new year.

I suggest we take the thinking caps off, technicals, fundamentals and all vestiges of rationality on PE ratios and GDP because we are treading on the field of behavioural science and behavioural economics now.

If we can use any word to describe the markets, I suggest FAUSTIAN would be the closest we can get. I am not going into the theological aspect of the situation that we are headed for damnation but rather the need for immediate gratification that has become a human and market trait these days.

Drawing inspiration from the famous words of Bob Moorehead which I quote below, I am betting on a rally for the wrong reasons.

“The paradox of our time in history is that we have taller buildings but shorter tempers, wider freeways, but narrower viewpoints. We spend more, but have less, we buy more, but enjoy less. We have bigger houses and smaller families, more conveniences, but less time. We have more degrees but less sense, more knowledge, but less judgment, more experts, yet more problems, more medicine, but less wellness.

We drink too much, smoke too much, spend too recklessly, laugh too little, drive too fast, get too angry, stay up too late, get up too tired, read too little, watch TV too much, and pray too seldom. We have multiplied our possessions, but reduced our values. We talk too much, love too seldom, and hate too often.

We’ve learned how to make a living, but not a life. We’ve added years to life not life to years. We’ve been all the way to the moon and back, but have trouble crossing the street to meet a new neighbor. We conquered outer space but not inner space. We’ve done larger things, but not better things.

We’ve cleaned up the air, but polluted the soul. We’ve conquered the atom, but not our prejudice. We write more, but learn less. We plan more, but accomplish less. We’ve learned to rush, but not to wait. We build more computers to hold more information, to produce more copies than ever, but we communicate less and less.

These are the times of fast foods and slow digestion, big men and small character, steep profits and shallow relationships.  These are the days of two incomes but more divorce, fancier houses, but broken homes. These are days of quick trips, disposable diapers, throwaway morality, one night stands, overweight bodies, and pills that do everything from cheer, to quiet, to kill. It is a time when there is much in the showroom window and nothing in the stockroom. A time when technology can bring this letter to you, and a time when you can choose either to share this insight, or to just hit delete…”

This would be the rally to dump into, a rally to suck the common folk in for the pros to exit. Speaking with some penny stock “experts”, I sense that it is in the making as I write. The pennies are stirring to life after a limp ending to 2013 and lame start to 2014. Reasons aplenty on the timing with the lunar new year around the corner and the year of the Horse beckoning a racy market ahead. Markets are a tad weary, waiting for a correction to buy into and central banks, still in discord over further easing and more stimulus against scaling back stimulus. No mention of tightening anywhere.

The cognitive bias is strongly skewed towards continuing where 2013 left of, trading mindsets all geared towards the big kahuna to come and the economic situation is so perplexing, no one really wants to bother to think about the next PMI number, inventory build ups and CPI.

I know I don’t. Why bother ? Each trade is only good for the next 5 days.