Paranoia strikes deep
Into your life it will creep
It starts when you're always afraid
You step out of line, the man come and take you away
We better stop, hey, what's that sound
Everybody look what's going down
- Buffalo Springfield, For What It's Worth
The song, "For What It's Worth" is often considered an anti-war song. Stephen Stills was inspired to write the song because of the Sunset Strip curfew riots in L.A. in late 1966 - a series of early counterculture era clashes that took place between police and young kids in Hollywood, and where Buffalo Springfield became the house band at Whisky A Go Go.
Fifty seven years later the song's meaning has relevance to the current conflict between bulls and bears!
It's time we stop
Hey, what's that sound?
Everybody look, what's going down?
I had presumed that markets would soon begin to brace for the reality of higher for longer (equities are already very overvalued against interest rates - with the equity risk premium being paper thin and the S&P dividend yield of only 1.5% vs. the yield on a risk-free 2-year Treasury note at 5.04%):
As well other concerns are multiplying... a heightened geopolitical instability, an unprecedented level of political partisanship, a widening income/wealth disparity, an incorrigible deficit and deepening national debt load, sticky inflation and slowing global economic growth (slugflation) - at a time in which valuations were undeniably high (from an historical standpoint):
In the first week of September I outlined many of my concerns in Investors, Like Ostriches, May Have Their Heads in the Sand!
I started this week, and in my Bloomberg Interview, with a discussion about the economic and market structure multiple distortions in Economic and Market Distortions Represent Existential Challenges to Equities.
Emotion Takes Over The Markets
In the words of a broken heart
It's just emotion that's taken me over
Tied up in sorrow, lost in my soul
But if you don't come back
Come home to me, darling
You know that there'll be nobody left in this world to hold me tight
Nobody left in this world to kiss goodnight
- The Bee Gees, Emotion
The most powerful argument these days for higher stocks is that equities remain resilient in the face of deepening fundamental and valuation concerns.
But, price momentum - leading to FOMO and the animal spirits - given the current state of market structure in which so many products and strategies (risk parity, ETFs, the proliferation of ODTE options, etc.) - is not, to this observer, a good reason to join the celebration.
I recently wrote that the US stock market started the summer as a voting machine. I am of the view that, in the fullness of time, the US stock market will, once again, be a weighing machine as it confronts the reality of these above.
My continued advice is to trade and invest unemotionally.
I continue to gradually expand my net short exposure on the recent market strength.
(This commentary originally appeared on Real Money Pro on Sept. 15. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)