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Where Will You Be When The Party's Over?

Any host who dares suggest to his drunken party-goers that the hour is getting late risks getting thrown out of his own home. Likewise, someone who dares suggest that a secular bull market could possibly, conceivably, someday end risks being reviled and despised.

Bull markets are intoxicating, and the longer they continue the giddier the imbibers become. This substantiates all kinds of tried-and-true market metrics and axioms, from contrarian sentiment indicators to knowing it’s time to get out when the shoeshine boy offers stock tips.

Of course, the inevitability for each round of euphoria is a humbling crash -  in a single market session or in an excruciating years-long decline. Either is awful.

The enduring characteristic of a major decline is just as inevitable, as it is recurring. People eventually rationalize each destruction of wealth in their portfolios. If it happens when they’re young, they dismiss it as a one-off and crawl back into stocks. There’s nothing wrong with that. But if they again get drunk at the party, they can easily forget the lesson they learned the first time, or the second time, or even the third.

An older person nearing retirement could panic back into stocks and desperately try to regain the spot from which he was knocked. But panicky investing is never a good idea.

How might we describe today’s party? Is it a good party? And is the host telling us that it’s almost time to go home?

Well, there’s no question that it’s a good party right now. Objective market indices say so. But the quality of a party can also be subjectively measured. Remember this exchange from Seinfeld?

GEORGE:  It's supposed to be a good party.



JERRY:  What does that mean? Good dip?



GEORGE:  No, there'll be girls there.



JERRY:  There's girls everywhere. 

For Jerry, dip and girls didn’t necessarily a good party make.

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