This is just a blip, we're told...markets will bounce back, the economy is improving and we're the biggest kid on the block. Our toughest competitor and simultaneously contentious bedfellow China has caught the flu. This our time to shine! USA! USA! USA!
Wall Street pundits and their esteemed guest hosts all have a message to sell. If this weren't so, you'd get a whole lot of truth and some of you may not like what is revealed. The market reality and the multi-trillion dollar behemoth that it represents all confirm one thing : the product doesn't have to work in order for it be valuable.
The irrationality of the investment community is nothing new : asset bubbles and unwarranted exuberance is an integral part of trading lore and so long as there will be humans, there will be soaring hits and devastating misses. Obviously, I would not characterize today's market action in such extreme sentiments. What I would say is that it's a warning.
While writing the script for a financial news network segment, I mentioned Advanced Micro Devices (NYSE : AMD) as a top speculative pick for 2013. Since the call, share prices exceeded my own bullish expectations. At the time, my research indicated that despite some horrible financial metrics (hence the speculation), the bears took the price down to unreasonable levels ; after all, their products were still very much in demand, despite having a "second-class citizen" status to rival Intel (NASD : INTC).
The good times came and I sold. Having gone crazy in the other direction, I felt it prudent to take profits off the table. Still, the good times stayed and I began to wonder...are the pundits right? Do fundamentals not matter anymore?
This week's broad market underperformance highlights the fact that fundamentals do matter. Numbers don't lie. You can fool all the people some of the time, but you can't fool all the people all the time. The laws of math simply don't allow such violations. There's been significant damage done to certain sectors within the economy that don't bode well for many companies. The wild ride taken by the Federal Reserve over the years also assures us that we're going to have unexpected kinks in the road.
Now, more than ever, is a time to re-evaluate commonly accepted belief systems. Apathy is easy, especially when things move along in a predictable manner. The sudden divergence from this artificial fantasy should give us that extra motivation to see what's really going on...