Desperate bears and the market’s path of least resistance

Here’s the first half of this week’s Trading With Cody Conference Call Q&A.

Welcome to another episode of the Trading with Cody live conference call chat. I am going to do a five to seven-minute opening commentary. We have several emailed questions and questions in the chatroom to catch up on anyway and I’m happy to take questions from those of you who have called in, so let’s rock and roll. I am focused and ready to go. I hope you guys are too.

When I was preparing for today’s conference call I was struggling to come up with what to talk about in regards to the market and doing the market’s overview at the top of this call like I usually do. So I called up a few hedge fund managers and former hedge fund managers who are friends of mine. Some of whom are successful hedge fund managers and others who are very successful business people in general.

I called them up and chatted with them, hoping they could provide me with some thoughts about the markets and give me some topics to hang my hat on this morning. It was almost the exact opposite. It was more like they were more lost in their thoughts than ever, at least more than usual. To be sure, we are all lost in our thoughts when it comes to the markets and trying to analyze and especially trying to predict the markets near term or the economy:

• What’s going to be a market-moving catalyst?
• Is the market going to top here or something?
• Is it going to bottom when things are bad?

Market analysis is always hard and convoluted and often circular. And “circular logic” is exactly howI described to one of my hedge fund friend’s commentary back to himself afterwards. All market analysis is circular in some sense, of course. Sometimes I’m feeling like I’m stuck in a self-feeding loop when I’m analyzing the markets and the potential and existing catalysts for market moves including geopolitics, economy, charts, etc.

Stepping back and just looking at our own world, our own analysis and where we have been and where we are going with Trading with Cody and Revolution Investing type of thought process, here is one insight I got from both of those discussions::

Any bearish discussion or discussion about catalysts for a bear market, forced the hedge fund managers to be desperate in their attempts to find weakness in the economy. The Chicago PMI was bad or the total number of those out of work is still too large. It was like any bearish discussion had people chasing random macro economic minutia. Like, retail. Retail is really bad. But we have to, of course, counter any retail discussion with the fact that Amazon is eating everyone up.

But just how big of an impact impact can Amazon really have on retail itself? Well, you know it is pretty big and it is not just Amazon. People are changing their shopping behavior around Amazon whether Amazon is the direct beneficiary or someone else is.

I think sort of the insight we can take from that is that you almost have to be desperate right now looking for macroeconomic bad news. And long-time subscribers know that for the last five years, six years, seven years now, they have listened to me talk about how the path of least resistance for this economy has been upward and that the corporate economy especially has been booming. The giant corporations themselves benefit from zero or near zero percent Federal fund rate. Zero percent interest rates, extremely low interest rates, make it easy for financial engineering and/or just borrowing to be done and investing in your business. It is cheaper now to do it. If you can borrow money at 2% or in Apple’s case negative 1% and buy back stock and invest in factories and hopefully create some innovations. (Hello Apple, Tim Cook.)

Near zero percent rates also force investors and savers and old people to invest in risker assets like stocks and real estate and low-interest rate corporate bonds, feeding the Bubble-Blowing Bull Market upon itself while times are good and rates are able to stay manipulated artificially lower. That trajectory is still here and it is still palatable.

Any bearish discussions with those hedge funds guys when they are desperate in their seeking of bad news, makes me wonder what world they’ve been living in. Many of them are now locked in perma-bear status because they’ve been bearish for the last few years and now can’t bring themselves to get out of that mode. Most of you have read at least some of the perma-bears out there or you have friends who on Facebook who have been explaining for the last ten years why the world and the US economy is going into a depression and the stock market is about to crash. Even as it has gone straight up and the economy been booming.

Don’t get me wrong guys. Main Street and rural America are still not benefitting as much from today’s policies that the Republicans and Democrats in power have built our economy around, as giant corporations and really rich billionaires and a hundred millionaires benefit. Poor people, in particular people on welfare, children whose parents are on welfare, are struggling as much or more today than they were ten years ago. But Apple, the giant technology companies that we have invested in, Axogen and some of the small caps that we have invested in, some of these names that we have bought over the last few years have clearly benefitted and been on fire with their stocks.

Meanwhile, there’s no denying that for the economy, in general, the trajectory for the last few years has indeed been upward.

I feel like a broken record for the last six months or six years writing about how I am desperately looking for that Black Swan event, that catalyst to take the markets and/or the economy level. But we have avoided falling for false “tells.” At least so far. We have been patient in riding our winners higher and boy have they gone higher and pat ourselves on the back.

And boy, aren’t we geniuses?

And we’re right to a circular logic loop. Because the next thought for me when we start feeling like a genius around here is: Crap, its usually time to trim or at least hedge. When you feel like a genius it’s usually just about then that the market kicks your butt again.

No easy answers. Don’t you just wish I could point to some charts and tell you this is the answer. That’s not how it really works though, is it?

So let’s continue to acknowledge the path of least resistance for the economy and the markets remains upward. And more importantly, let’s continue to try to find the great next Nvidia, Axogen, Apple, Facebook, Google, Impinj, etc in the midst of the market doing whatever it’s gonna do.

Let’s find another stock that will triple in a year. We’ve done it many times in the past. Let’s do it again. I’ve got some names that I think might be the next one. I think we’ve got some names might want to put our toes in the water with.

Let’s open it up to questions and answers. Because clearly I got all the answers huh (LOL).

If you are on the call and you want to ask a question please jump in now because otherwise I have a bunch of emails and chat questions I can hop into.