The Case for FOMO Is Fading -- Rapidly

As we begin a shortened trading week, let's discuss three major market factors -- Omicron, Build Back Better and FOMO -- and how I'd be positioning my portfolio under these conditions. Omicron It is impossible to talk about risk or positioning in this market without considering the Omicron variant. I am not the only person to say this, but I think the potential policy response is scaring markets more than Omicron itself. Until President Biden speaks on Tuesday, we will see some volatility around Omicron. Parts of Europe are going into lockdown, but I do not see that happening in the U.S. At the moment, all indications are that Omicron is relatively mild for both the vaccinated and unvaccinated. It certainly seems far less deadly than Delta or the original variants and we are much better prepared for dealing with it. Yes, it is impacting the unvaccinated worse than vaccinated, but it is nothing like what the earlier variants were in terms of fatalities. Given that assessment, and the overall tone that I see, I think we will manage around Omnicom. BBB The Build Back Better bill looks in serious doubt after Senator Manchin declared over the weekend he couldn't support it in its current form. That is disappointing, but I would be surprised if we don't get something through next year. Heck, it might even be more focused on the economy and jobs. So that is a minor concern for me. FOMO I am extremely nervous about any asset that has benefited from TINA (there is no alternative) or FOMO (fear of missing out). Cryptocurrencies at the moment are front and center, but there are various stocks that fit that narrative as well. Some of those stocks are down 25% or more, but I am still cautious on them. The case for FOMO is fading, rapidly. Since many of the FOMO assets have sold-off, the last round or two of adopters are sitting on losses. In some cases, such as the Ark Innovation ETF , based on share creation/redemption, the average holder is likely to have lost many. * FOMO works best when assets are rising. * FOMO works best when each successive wave of investors is encouraged, based on performance to drag in new investors. * Those last adopters, were the most reluctant and are more likely to sell than recruit new players. Volatility is important too. If we get even stabilization the fear of missing out is greatly reduced. Whether it is crypto or a stock that was once volatile, starting to trade in a range, the fear of missing out is diminished. Complexity helps FOMO on the way up (if you don't understand something, it is easier to believe you are missing out), but it also hurts on the way down, as all those nagging doubts return. So, as a contrarian, I generally like beaten-down assets, but I will not touch the FOMO assets right now. Bottom Line On the equity side of things, I'm leaning heavily towards: 1. Companies with cash flows that are relatively easy to understand, that may pay consistent dividends, that fit under the value factor. 2. Cyclicals and small-caps. 3. High yield or leveraged loans of closed-end funds based on those underlying markets. 4. Mexico and Latin America generally. Highly risky, so only a small allocation. I guess I could best summarize this as expecting quality to outperform FOMO in the coming weeks, possibly by a wide margin.

The Case for FOMO Is Fading -- Rapidly

I am extremely nervous about any asset that has benefited from TINA or FOMO.

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