The Danger of Groupthink: Firing Line

"If everyone is thinking alike, then somebody isn't thinking."

In today's market I frequently refer to this quote from General George S. Patton. You don't become a four-star general like Patton by being a "yes man" or surrounding yourself with what we used to call "hinges" -- new midlevel officers who appeared to have had hinges surgically implanted in their necks because every time their commanding officers made a comment, they would nod in agreement. Occasionally, we would recommend that they apply some WD-40 to their hinges to stop the squeaking.

The market continues to roar higher, fueled by small pieces of financial tinder. Alcoa(AA Quote) led the recent charge by reporting better-than-expected earnings, partly as a result of cost-cutting. But reducing costs can only get a company so far before it starts to hit bone. At some point, the market is actually going to expect companies to make money -- shocking, but true. Alcoa is currently trading where it was a year ago, before the financial tsunami, but its revenue is down more than 70%. I'm no rocket surgeon, but that doesn't make too much sense to me. But then again, a lot in this market isn't making sense.

Last week, JPMorgan Chase(JPM Quote) crushed expectations and Intel(INTC Quote) easily beat. On Monday, the National Association for Business Economics (NABE) declared that the recession is over.

Speaking of rocket surgery, an understanding of financial physics says stocks and the markets tend to revert back to their mean over time. But when applying regular physics we know that a body in motion tends to stay in motion until acted upon by some outside force. Folks, this market is a body in motion, and investors are getting sucked into the wake.