Nobody goes there anymore. It’s too crowded. ~ Yogi Berra
As a philosopher-type, I like to use metaphors; they can be effective in painting an abstract picture that enables universal understanding. But metaphors can also provide a means to concrete translation for the individual. In a non-philosophical description, metaphors can be instructive and entertaining.
So let’s entertain ourselves today by observing the collective capital market and economy in terms of the “party metaphor” and let me know where you think the party is today.
Nothing Attracts a Crowd Like a Crowd
The party metaphor works because every party (and every market cycle) is different, yet they all take a similar shape or form. However, it’s not a perfect metaphor (if there is such a thing) because the beginning of the stock market party is marked by the end of the previous party. There are also people who attend parties but may not be labeled as “partier.” But before I digress into party semantics and appropriateness of metaphors, let’s begin forming a vision of which stage this current capital market and economic party stands today:
- The Beginning of the Party: The Federal Reserve brings out the punch bowl to get the party going and the politicians set the mood with music, lighting and games or anything they can find to create atmosphere (better known as illusion).
- The Middle of the Party: The party-goers begin to separate into their own groups and assume behavioral roles. There are those party-goers (the partiers) who never seem to stop partying; they are among the first to arrive and the last to leave. There are also the party-goers who attend but stand in the corner sipping on a cocktail, either amusing themselves by observing what they perceive to be the crowd’s foolishness or they are just killing time because their spouse “made them go.” There are also the late-comers who have not yet arrived; they either like being late, they are still trying to decide if they should attend or not, or they haven’t yet heard there is a party because mass media and/or social media is their primary source(s) of information.
- The End of the Party: The absolute end of the party is difficult to predict but they have a common form. The beginning of the end comes when the Fed removes the punch bowl (or even when there is a rumor the punch bowl is about to be removed) as some party-goers leave. But the size of the crowd is not yet at its peak. As the absolute end of the party nears, the late-comers are still arriving. Politicians begin to hand out “prizes” (bought, of course, with cover charge money) and they water down the punch, which signals some party-goers to leave but “free stuff” makes the unaware partiers even more excited. The media also begins to spread word of the party, which brings out the final wave of late-comers.
So Where is the Party Now and What Kind of Party-Goer Are You?
We can at least agree that the Fed’s punch bowl is still out. But do you believe the party is nearing an end or might it still be in the middle? What kind of party-goer are you? Personally, I’m the one in the corner sipping on a cocktail while quietly observing others. I’m not the first to arrive, nor the last to leave. I’m self-employed and the vast majority of my capital is in my own business. Therefore I like to “party” at my own house and leave the big parties to the professionals and the amateurs.
Let me know what you think. As Barry would say, “What say ye?”