Rorschach-Test Economy Lets You See What You Want
The expansion and bull market are aging and the data no longer point in just one direction.
Bloomberg, October 24, 2019
Where are we in the market cycle? How likely is a recession? How cheap or expensive are equities? What expected return levels should I have for my portfolio? And what can investor sentiment tell us about these concerns?
These may be typical investor questions, but the answers are anything but.
The reason why is that the post-crisis economy, including U.S. equity markets, is at that point in the cycle – the middle 5 innings that are neither the very start nor the very end of the ball game. The evidence is fairly balanced, with each datapoint has an equal and opposite counterpoint, be it bullish or bearish.
It is not always this way. There are times when investment sentiment is more uniform and bunched up towards the extremes. Remember the so-called “mental recession” called out by Senator Phil Gramm in 2008? That was in fact 9 months into the worst recession in decades, leading to a 57% collapse in equity markets. The crowd got that exactly right, while economists (and senators) got it precisely wrong.
Other times, it can be the crowd that gets it precisely wrong . . .
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I originally published this at Bloomberg, October 24, 2019. All of my Bloomberg columns can be found here and here.
