I Don’t Know
Nov 19, 2021
It was a line made famous by Jeff Spicoli in Fast Times at Ridgemont High. And while he probably wasn’t the guy you’d turn to for financial advice, he was definitely on to something. Because when it comes to what markets will do the next day, week, month or year, no one knows anything.
There is an endless list of reasons why this market should give up some of its gains. Fundamentals, technicals, common sense, they all make a compelling case for why this market has outkicked its coverage. Still, it’s proven itself impervious.
We coughed off Covid. We’ve so far laughed in the face of inflation. Political turmoil? Please. Threat of war with China? Whatever. This market is pandemic proof, recession proof and bulletproof.
There’s an old saying, markets can stay irrational longer that you can stay solvent. Since the 2008 crash, we’ve been on an irrational ride higher. If the market is not up at least 20%, it might as well be a down year. Our expectations are so skewed at this point. Just one recent example, Sweetgreen. Sweetgreen is Chipotle for salads. Its IPO price was $28 and when it began trading on Thursday, it doubled in price. Of course it did!
There are boundless reasons to worry about a market correction. There isn’t enough room to list them all here. But when no one is surprised at 25 - 30% annual gains, you have to step back and ask yourself if there’s something in the water. The fact that no one is complaining about those returns makes sense. Who would complain about making 30%? But, that no one is at least whispering to the person next to them, “Hey, does this seem odd?” should serve as a warning.
So that leads to one question - what is driving this market? Is it all the money the Fed has pumped into it? Is it stimulus checks being spent on fractional shares of Tesla? Is it The Reddit Gang YOLOing calls in meme stocks, forcing market makers to buy stock as a hedge? Is it political policy? Is it season two of Tiger King?
There could be any number of reasons to explain the current market. Mainstream financial media literally has drawers filled with headlines they can use to explain the day’s market activity. And, while we could have endless debate about the actual reason, we already have the answer courtesy The Oracle of Ridgemont High. I don’t know.
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