Irrational Skepticism

The level of pessimism is so high, and I do believe that it is much unwarranted.

We are led to believe that the world would collapse as a result of small country defaulting on a loan when there are much bigger ones that has happened before- think of Russia and Argentina. I have noticed that although indexes are falling, blue chip companies volumes have remained to be rather thin.

Very often, the counters which dominate the volume chart are companies which have remain rather obscure or rather seasonal. It is almost the market is finding any excuse to push itself down.

Previous paradigms of positivity and optimism as a norm no longer rings true as a the wave of "skepticism" sweeps the market. It is almost like any news put out by any agency must be viewed with suspicion.

I do believe that the market is changing itself from "irrational exuberance" to an "irrational skepticism" paradigm. The assumption have changed from cheering any positive news to one of dampening down any positive numbers. The result is therefore that for any positive upward trend, there must be be "ironically" nothing happening. Only when nothing happens- would the market have see any uptick.

It would appear rather that the market have shifted from one of optimism and pessimism to one of stability and volatility. Any news that changes is bad, any news that remains is good. Therefore the market is tired from extracting value on predicting the future and have taken the easy route of taking a straight forward trajectory has opposed to allocating capital in the most efficient way.

Therefore we can extract a permutation of :1) positive/volatile 2) negative/ volatile 3) postive/stable and 4) negative/stable. On 1) the result would likely up slight downward trend as the effect of volatility would dampen any positive news. 2) The market will correct itself by more than 1% 3) It is the ideal- where positive news is met stable outlook. Eg of such news include: positive job numbers coupled with steady growth 4) This might even have slight upward trend as the market is tending towards stability in spite of weak numbers.

This orientation towards stability as opposed to values is going to have a 2 fold effect 1) those with political upheavals can expect poor market response, as the market is adverse to change of any sort right now 2) The market will not respond to pro-action as compared to pre-emptive measures. It is therefore one can see trending towards status quo as compared to innovation and creation.

Therefore market leaders with strong cash flow balance and constant product line is expect to do much better as compared with companies who are game changers by nature.

It is perhaps understandable that given the recent upheavals in the market the last couple of years that players are putting premium on longevity as opposed to new-ness.

But this trend I do believed would not last too long. It's aversion to risk and volatility is the result of change fatigue rather than participating in a retro vogue. And indeed if this trend were to continue, we would be throwing away our iPhones and using our pagers in time to come.

This retro fad is one I which believed will fade in time, once the pent-up instinct for efficient capital utilization kicks in, in time to come. And that's when they announce the arrival of iPhone 5- then it is time to buy into the high beta stocks.