Bears Still Lurk

A snapshot of the economy and the uninterrupted rise in the world equity markets is encouraging the notion of a "Goldilocks" scenario. It is supporting a positive investment landscape characterized by narrow credit spreads, record low levels on the major volatility indices, improving investor sentiment and recognition of the benefits of the emergence of new (and emerging markets) and the excessive global liquidity that this development entails.

In looking at the sustained march in equities (13 out of 14 months have recorded positive returns) and the significant records being recorded (consecutive trading days without a 2% or 10% correction), it is clear that we are in a bull market for optimism/momentum and for financial assets (particularly of a long-only kind), while we are in a bear market for skepticism/disbelief and for hedging/short-selling.

My ursine view is focused on the future, not the present. As such, it is less easily defended when equities move upward in an almost uninterrupted manner. It is a prospective and anticipatory view that gives less weight to the seemingly positive recent economic releases and conditions.

It is a contrarian view, because it argues that current trends should not be extrapolated. Rather, my opinion suggests that many of the core arguments that underscore the Goldilocks case will be re-examined over the upcoming weeks and months.