peacelover,
Wall St. really makes no sense at times.
This IS one of those times. :-)
WS makes perfect sense in its own way and by its own rules, which are constantly changing. Sometimes the rules align with what appears logical and sometimes the rules are actually the complete polar opposite of what one would normally consider rational.
Taken as a whole, I believe these "rules" morph little by little, over time, as the business cycle progresses, until the investment world seems completely upside down to someone who entered the market at the bottom of the last business cycle. At that point, the prudent types (a la Warren Buffet) scale their buying way back, or go to cash or bonds. The somewhat less cautious keep buying or begin nibbling on some short positions (both of which have some risk at this point in the cycle). The reckless keep buying hand-over-fist, on margin, or start shorting massively (both of which are extremely risky at this point in the cycle).
Of course, if we are NOT REALLY at a peak in the business cycle, then none of the above applies. But I think we ARE at that point. The reason that this particular market has become as "exuberant" as it has is because the mass-memory of this market has no synaptic impressions of the downside effects of the last business cycle, mainly because the last meaningful retreat in the business cycle was way back in the early 80's. Many (most?) of the current participants in today's equity markets have no experience (and hence no memory) whatever of this period and its consequences, so it's UP-UP-AND-AWAY -- until ????
The moral: stay a little long, raise some cash, short a bit, not a lot, get off margin, watch, wait, and be willing to accept what comes. |
