The things you don`t know you don’t know


The things you don`t know you don’t know

By Thorsten Wegener


OK, I borrowed the title from Donald Rumsfeld’s immortal speech about the uncertainty of the future in general and horrible things that are about to happen, or not and our inability to predict them. For a while now, I have this nagging suspicion that there is something going on in financial markets, especially US Equity Markets, that I should know but don`t, or to stay with Mr. Rumsfeld, the known unknowns elude me.

For a year now, the so-called smart money, more or less frequently, predicts the end of the world, or at least the demise of the US economy and in its wake the at least temporary end of the stock market. I concur with a lot of the analysis my fellow former colleagues produce to justify their forecast of the choppy seas awaiting us humble investors. There is of course the budget deficit, enormous in its dimension, excessive in its growth rate. There are the insane valuations of single product companies (yes Apple, I am writing about you), PE ratios at inflated levels, manipulated interest rates, looming trade wars and Elon Musk apparently has trouble to get a good night’s sleep in. This all happens while all mayor indices make new all-time highs. However, the one point all professional pundits seem to be able to agree on is the not unimportant factoid, that bull markets die in euphoria and this is the one mitigating fact everybody seems to agree on, has not yet happened and that the party might well go on.

So why are the smart people, analysing markets all day long because their livelihood depends on it so wrong with their rather cautions outlook? I should know, as I have once been considered part of the smart money crowd myself.

After pondering over this conundrum for quite some time it hit me. It`s all President Trumps fault. Not the deficit or the trade wars, NAFTA or Russian meddling in the elections or God forbid the wall with Mexico. No, it’s his relationship with the media, which takes my ability away to accurately judge the market sentiment.

Let me bring my point home with a thought experiment: For some divine reason President Obama would have been able to follow up his two-term presidency with a third term. A bit like FDR but not quite. With an economy booming and stock markets at new highs the mainstream media would run fluff pieces about the miracle economy on an infinity loop. 401k Investments by the hard-working Americans, funnelled into a bloated ETF market would be celebrated as proof of the soundness of Americas economy and the trust by the populous into its political and economic leadership.  Companies of self-made billionaires who after all were children of emigrants and openly gay CEO`s would be on frontpages of glossy magazines for their business acumen and not their sexuality or ethnic background. Headlines might quite possibly announce the beginning of a new economic area and that this time things are different. They might say the boom and bust cycle had finally run its course.

Instead Jeff Bezos is, according to Bernie Sanders, the incarnation of evil and I am sure Tim Cook takes a breather every day that the Progressives haven’t started the hunt for Apple quite yet. I assume they love their little iPhones too much. Tax cuts and resulting wealth effects, record employment levels especially among minorities as well as high confidence levels and rising stock markets are in the current observable reality interpreted as the harbingers of doom.

Let me ask you this simple question: Are we already seeing the retail crowd going nuts with their newly discovered ETF investments and the media simply deprives us of the beautiful magazine front cover indicators foretelling a golden age of equity investments, which once were the sure-fire thing to get you out of the markets for a while? Would we be able to see the forest for the investment trees, if only our media would like President Trump as much as they liked President Obama? I do not have the answer, only a slight suspicion that I might be right and there is more euphoria in the market than we are allowed to see. Be carful, the wall of fear might be as real as wall with Mexico.


Stay ruthless.





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