Things are not always as they seem -- at least that's the lesson we might be learning in the markets right now.
Normalization of profits, profit margins and interest rates will likely be a headwind to domestic economic growth and an albatross around the head of several investment asset classes in the period ahead.
Until recently, markets have willfully ignored the above in addition to rejecting the possible adverse investment consequences of expanding geopolitical risks in favor of, as my pal Mike Lewitt describes, "cold-blooded focus on central bank policy."
As I wrote several months ago, a mini Minksy moment might be at hand -- thanks to an exaggerated exploitation of portions of the equity and fixed-income markets and a growing attitude of complacency that has followed the exploitation of these asset classes.
The road to investment hell is paved with good intentions
After the largest weekly decline in nearly two years, the markets are now near-term oversold and a (weak) rally is possible in the next few days.
Similar to Pavlov's dog, market participants will be inculcated with the notion of buying the dips. You will hear this mantra from the business media, from investment strategists and even from your financial planners.
It is my view, however, that a more meaningful correction seems likely in the weeks and months ahead.
While it might be tempting to consider last week's drop as another opportunity to buy the dip (similar to earlier in the year), I suspect rallies should now be sold.
With breadth deteriorating and new highs falling, the market's character has changed, and numerous negative market tells abound (and have been heretofore dismissed until the past week).