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Looking for Black or White in a Shades-of-Gray Market


The markets are at a significant crossroads. Confidence rises and brings with it broad, accelerating growth, or this is as good as it gets and the economy rolls over.

I was asked last week why I hadn't written something significant for Minyanville recently. My response was, "I am watching the world around us instead." The person I was speaking to walked away perplexed and shaking his head. I was a wimp for not having an opinion.

Turn on the TV, open the paper, or click into the blogosphere, everyone has an opinion – and a definite, if not extreme one at that. Investing is all about confidence, and if, as a pundit, you don't have a clear, absolutely certain view, there is no room for you today. Do you see the world as black or white? Choose, damn it!

When I offered to another friend recently that I actually wasn't sure where the markets were headed from here, he emailed back, "You know that in financial publishing you can't stay on the fence too long."

Don't stop to reflect, just opine. Did you not hear me? Just give me black or white. If I wanted 50 shades of gray I'd have read the book. OK, I'd re-read the book.

To be clear, my pause for reflection is not at all a function of my prior for better or for worse views on the market. I write as I see things. When I am right, great. When I am wrong, I am wrong. But I call them as I see them.

My current state of indecision, though, reflects what I see as a market in need of a new story, or said more accurately, new stories. From the Fed to Apple (NASDAQ:AAPL) to gold to the circle of leading economists, I sense, as the Wall Street Journal put it yesterday regarding Apple, "a crisis of identity." The clear, strident universally-shared views of the past are under siege and no longer certain. Last week, for example, I saw stories (aka analyst reports) suggesting that gold will go on to make new highs in 2014, while other stories suggested that the metal should be valued for its industrial utility (well below current price levels).

The lady or the tiger. Choose.

And the same could be said for housing today. This first quarter was either the pause that refreshes or the beginning of a major rollover.

So which is it?

I don't know.

You would think that with equity prices at record highs the signals would be clear, but they are not. The same economic recovery asymmetry that Pew presented yesterday abounds in American social behavior today. For the very high end, Pew's top 7%, it is The Great Gatsby. For the other 93%, it is more like Oblivion. As a socionomist I see the distinction every day. The luxury market abounds with wealth-effect behaviors, while the rest of the economy suffers from adverse income effect. Not in modern times has America seen such a contrasting experience between the owners and users of financial and commodity assets.

As I see things today, do economic conditions now improve for the 93%, or do the 7% -- who have been driving the economic recovery -- now roll over?

I don't know.

But that is what I am watching for closely.

From my perspective the markets are at a significant crossroads here. Confidence rises and brings with it broad, accelerating economic growth, or this is as good as it gets and the economy -- along with the equity market -- rolls over.

But I would note that with bonds and equities, both at record highs at this critical juncture, the financial market outcome is all but certain to surprise investors. As best as I can tell, Modern Portfolio Theory never contemplated this moment.

So I watch. And at the risk of overstepping, I'd recommend that you do the same.

What's next is going to be big. Very black or very white.

Right now, though, it is all 50 shades of gray.

Peter Atwater's groundbreaking book "Moods and Markets" is now available on Amazon and Barnes & Noble.

"Peter Atwater brilliantly provides a framework for understanding both the socioeconomic hubris that led to the great credit bubble of the past decade and the dark social-psychological hangover that has resulted from its collapse. In so doing, he offers an invaluable guide to what promises to be a very difficult and turbulent period ahead as we experience what he calls the 'me, here, and now' behavioral tendencies of the post-crash world." -Sherle R. Schwenninger, Director, Economic Growth Program, New America Foundation

Twitter: @Peter_Atwater
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