Michael (Jeff Goldblum): I don’t know anyone who could get through the day without two or three juicy rationalizations. They’re more important than sex.
Sam (Tom Berenger): Ah, come on. Nothing’s more important than sex.
Michael: Oh yeah? Ever gone a week without a rationalization?
You can never underestimate the absurdity of the after-the-fact rationales people come up with to explain and justify market action.
Why? Us primates seem to prefer narratives over numbers; We like a good story, the preference is for anecdotes over data, for a “feel good” explanations as opposed to cold hard facts. They can pitch a good story over the phone to clients and prospects. With numbers and data, not so much.
Its why Wall Street tends to be a house of mirrors — any good explanation gets adopted and passed down the food chain to explain a position or investment posture, invariably AFTER THE FACT.
It is important to understand the difference between investing from a thesis or broader theme — Gold rallying due to low rates; Alternative Energy as a result of $100+ oil — versus an after-the-fact justification for existing holdings. One is a credible, defendable approach, and the other is just so much sales blather. The amazing thing is why anyone would believe the latter, and why so many ignore the former.
Our case in point is the absurdly foolish Green Shoots compost. As we have detailed since this nonsense first started spreading earlier this year, the data simply did not support the notion of a 2nd half recovery. Not only below the headlines, but the actual releases. It was hope, not facts, that led the way. Second derivative improvements are not the same as expansion.
Of course the market rally off of the lows was telegraphing that the economy was recovering! Never mind what it was saying at the all time highs in October 2007, four months after the Bear Stearns hedge funds collapsed.
I’ve said it before, but it bears repeating: Beware Economists who rely on stock markets to forecast economic activity . . .
Green Shoots Are For Suckers (April 17th, 2009)
Green Shoots Everywhere ? (June 16th, 2009)
Getting Worse More Slowly (April 8th, 2009)