A Possible Ray of Hope| By Herb Greenberg |  |
 Is the stock market at an inflection point?
Don't we all wish for this to be the case, unless of course this really is the end of times. I'm in the camp that says this market still has to go through a deep cleansing... and that's based on nothing more than my worldview of common sense. Of course, common sense and a dollar won't get you on the New York subway. Likewise, you can read all of the charts, study all market history, and decipher whatever code is the code du jour, but as I've said repeatedly, nobody knows exactly who, what, when, where, and why this will all end. I also know that somebody will be quoted at the right time and in the right place saying the right thing and be regaled as the new flavor of the month... or, given news cycles and the speed of change, maybe flavor of the minute. What I think we can all agree on is that the market's last mania went too far, too fast, for too long. It always does, because in the markets things always overshoot. Nobody knows that better than my friend Peter Atwater, who has made a career of trying to interpret market moods. Peter is an adjunct professor at William & Mary, author of Moods and Markets: A New Way to Invest in Good Times and in Bad, a contrarian's contrarian, and an expert in confidence-driven decision making. I first introduced you to Peter during the mania back in January, in an essay headlined, 'An Obvious but Easy-to-Miss Danger Sign in the Markets'... That's when he wrote in the Financial Times about something he called "extreme abstraction," or as he put it... The rocket ship emojis and popular trends that included trading in non-fungible tokens of cartoon bored apes were manifestations of a deep-running trend towards extreme abstraction. From SPACs, to cryptocurrencies, to NFTs, to Web3 and the metaverse, what investors wanted most were things that, well, were difficult to explain. I followed up by saying... Think about it... If you have a Twitter feed with an investment bend, these new acronyms or investment concepts started springing up out of nowhere until they became ubiquitous... seemingly getting mainstreamed overnight in the financial press. This brings us to today... We're seeing the mirror opposite of abstraction – something Peter calls the "Me-Here-Now Reality." Or as he explained in his insightful Financial Insyghts newsletter... The reason I bring this all to your attention is that two years ago, no one could imagine the kind of financial devastation evident... SPACs, shitcoins, and other embodiments of extreme psychological distance were all the rage. As I wrote at the time, it was a "bubble in dreams." And now, almost all of those dreams have since turned to nightmares. As a result (surprise, surprise!) investors are starting to crave real companies that make real things, have real profits, and generate real cash flow. (Which, by the way, is the fun of doing what I now do... looking for those very companies with my Investment Opportunities newsletter. I published the latest issue on Friday detailing a business that nobody has ever heard of, but it has leading market share in its industry, is profitable, generates lots of cash, and is poised for growth. If you aren't already a subscriber, you can find out how to get instant access to this brand-new recommendation right here. But I digress...) Suddenly, I'm writing about longs (a contrarian signal itself, if I've ever seen one)... value stocks are back in vogue... and stories are popping up about investors hoarding cash, which not that long ago was considered the trashiest of trash. In other words, this is a true test for true contrarians. The hook for Peter's view was a column in the Wall Street Journal by James Mackintosh about how companies have to start focusing on profits... now. But as Peter explains... I doubt Wall Street Journal readers batted an eye when they read these final words: Expect stocks that give priority to stronger balance sheets and return spare cash to shareholders to beat those that keep plowing money back into growth. Only the firms with the strongest records of innovation, huge cash piles, or ability to ignore investor pressure are likely to keep making wildly ambitious high-risk, high-reward bets. Put simply, where two years ago, no one could imagine insatiable demand for "Me-Here-Now Reality," today, the idea of a rebound in abstraction is laughable... Or is it? I don't think Peter – or anybody – is calling for a return to the "bad old days" when the "kids" with their Robinhood accounts thought they really could occupy and change Wall Street. It's important to note that Peter and I both tend to be skeptically wired... We're keenly aware of the uncertainties of the world around us – not just the rampant inflation in the U.S. or the impact of rising interest rates... but more worrisome, the domestic and geopolitical wild cards that could have unintended consequences that we would rather not fathom. All of this was neatly summed up in a recent missive by Paul Singer of Elliott Management, who wrote... To recap, we have: threats of nuclear war by a country that has more nuclear weapons than any other; a deliberate suppression of the supply of the world's most important resources; the developed world drowning in ever-growing indebtedness and unrepayable entitlement obligations; the world's greatest real estate and stock market booms; the developed world's greatest fall in bond prices; and a likely permanent negative inflection point in globalization. And as discussed thus far, this is only one part of the current landscape for global risk. Maybe after decades of politicians kicking the can down the road for the next generation, this will be the moment the most bearish among the bears have been warning about since I've been in this business... that the can is simply too rusty and damaged to be kicked even one time more. Or, maybe, just maybe, we're overthinking this... Back to Peter... It just feels to me like I have gone from being the crazy guy with the "End of the World" sign on the street corner to a consensus thinker. Doom and gloom are now all the rage. All of which is a long way of saying, with the financial media now extolling the virtues of "Me-Here-Now Reality" behavior, it may be time to consider the alternative. Maybe it is time to be optimistic and to dream again. Maybe, except this time with our feet firmly cemented into the ground. As always, feel free to reach out via e-mail by clicking here. I look forward to hearing from you. Regards, Herb Greenberg
November 8, 2022
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