Mr. Market Has a Mistress

The media seems a bit crowded with the “I told you so” pundits, who are only outnumbered but those who offer “a way to fix the financial crisis.” The other trope proffered hourly is that the markets are really “irrational right now.” But aren’t they always irrational? Wasn’t the market just as irrational on the way up?

We understand almost nothing about psychology because psychology never explains itself. Mr. Market has a mistress and her name is psyche. Psyche may be whispering, “Timothy Geithner means green screen.” Remember Andrew Mellon? Psyche used him and then tossed him into the dustbin of history. Who was Andrew Mellon? Why, he was the Treasury Secretary from 1921 to 1932. Was he important? Yes, but he's meaningless now.

Psych 101

You hear about the VIX all the time. It seems to be a very convenient explanation, but it's meaningless. It has no inherent meaning. It only has the meaning which we give to it at any time. It's what the Dalai Lama simply calls “empty.” The VIX is referred to as the "Fear and Greed" index. But aren’t there other emotions like doubt or hope or sorrow? Are there only 2 kinds of food - tofu or popcorn? The VIX schpiel is a sham. It's just a number. Psyche does use names and numbers, but only as symbols. She's into Geithner right now because he's the new guy. But like Alan Greenspan, Madonna or Andrew Mellon, he's meaningless. That is, he only has a relational meaning. Geithner symbolizes a green screen… For now.

Sentiment Numbers Are Dumb

Sentiment is meaningless too. It's just a number which has different meanings at different times. Sentiment always has to be interpreted. For instance, in a trending market, sentiment is a self-reinforcing, rather than a contrarian, indication. During a bear market, like this one, there's a preponderance of negative sentiment. I've been measuring sentiment, by my own method, for over 20 years. It's just as meaningless as the VIX. (There have been several daily sentiment readings of 0% bulls over the last 6 weeks. Each one has led to a short-term rally, albeit within a declining trend).

A Quantum of Upside Solace?

Last week we registered relatively rare, back-to-back 0% bullish daily sentiment readings. Does this “double odd” (007?) sentiment infer a quantum of solace for stocks? Should we bet on “00” as one may at roulette? This isn't a Monte-Carlo simulation. Psyche seems to be symbolizing that the S&P may rally 75 to 125 points over the next week.The Treasury spike, gold spike and S&P reversal on Friday are synchronistic with the Geithner symbol. We want to have the market explained. Psyche doesn’t do that. The punditry will rationalize it for us after it happens. Meanwhile, psyche remains ensconced in Mr. Markets’ boudoir.