What’s Your Narrative?

Below please find Barry Ritholtz St. Paddy's Day column in which he offers a different perspective on the so-called post-election Trump rally, suggesting that the forces behind it are very different from what most investors think.  Food for thought and certainly a rationale rooted solidly in sound economic fundamentals.  And it's a short read with a couple of telling graphs to boot.  Hope everyone's enjoying the weekend.  At least the temps are finally going up.

Once Upon a Time, There Was a Trump Rally ... - Bloomberg View

What’s Your Narrative?

March 17, 2017 1:00pm by Barry Ritholtz

What’s your story?

I don’t mean your personal history, relationship status or childhood neuroses. I refer to your market narrative. What story or stories are you telling yourself to rationalize your investment posture?

This is not insignificant. For many investors, a tidy little narrative help makes them comfortable with their positioning, regardless of that tale’s accuracy. This creates potential hazards as market conditions change.

We see dangerous, money losing narratives all the time — with politics, gold,elections, venture capital investments, financial crisis analyses, market crashes,individual stocks, models, just about any stock market event. Humans simply love a good story.

Why is that? Narratives impose a rationality on market action that is random and meaningless. This is especially true of the daily action, which is noisy and irrational. Investors are not fond of admitting this, so instead, they construct stories to convince themselves that (a) what is going on is rational; (b) they understand what is driving the market at any given moment; (c) they are well positioned to take advantage of it.

For most people most of the time, that story belongs in the fiction section. No one likes to admit they live in a random and meaningless universe.

The dominant narrative I see these days is about the Trump rally, and it goes something like this: The election of President Donald Trump, along with the retention of the House and Senate by his party, creates a scenario for sweeping changes in Washington and an end to partisan gridlock. Corporate tax reform, tax cuts, deregulation, repatriation of trillions in overseas profits and a major domestic infrastructure program are very likely, and U.S. markets are rallying in response.

This is a bit of an after-the-fact correlation, and the tidy little story fails to withstand scrutiny. There is also an element of politics attached.

Stock Markets Since Trump’s Election

Continues at: Once Upon a Time, There Was a Trump Rally