Saturday, December 24, 2022
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Consensus – The Irrelevant Investor


Per week in the past I used to be in a room with 100 individuals and requested the next query:

What number of of you assume the S&P 500 takes out its October low?

At the least 80% of the individuals raised their arms.

I then requested, what number of of you assume we’re in a recession or shall be in 2023? Everybody who had their hand raised for the primary query stored it within the air for the second.

My small pattern is confirmed by each ballot on the market. Extra individuals count on a recession than at every other level in current historical past. This chart from Jim Bianco confirms our emotions.

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I’ve been fascinated about how that is baked into the market and the way it would possibly impression the habits of shoppers and companies. And reflexively, how that may impression the economic system and the market.

Warren Pies wrote about this in his 2023 outlook:

A consensus has fashioned round these consensus points: Fed pivot within the spring. Equities may have a tricky first half, however rally by way of 12 months finish. There shall be a recession, however it will likely be brief and shallow. With everybody anticipating, and finding out, the identical occasions, it’s value reviewing George Soros’ principle of financial reflexivity. Right here, Soros posits that commentary of the economic system results in concepts that change habits, which in flip modifications the economic system itself. Making use of this principle to the menu of points going through 2023 results in a variety of questions: Is there a threat that a lot anticipation of a Fed pivot might trigger a untimely rise in asset costs and, thus, dissuade the Fed from pausing as quickly because it in any other case would have? Is it attainable for a extremely anticipated recession to be very dangerous? Or will shoppers and companies put together accordingly, thus blunting the impression of any downturn?

You may’t take something to the financial institution in the case of investing, however I’ve discovered through the years that the market tends to idiot most individuals more often than not. When everyone seems to be anticipating the market to go a method, it often goes the opposite.

As we head into the final week of the 12 months, the S&P 500 is down 20% for 2022. Is that sufficient injury for a softening economic system, an aggressive fed, a 4.6% risk-free price, and valuations that aren’t a screaming cut price? Every of those is worthy of an extended dialogue, however my reply might be not. However I’m consensus, and in case you’re nodding your head, then you’re too. Right here’s to hoping the consensus is flawed.

Wishing everybody who celebrates a really merry Christmas.

 



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