I watched a TV show yesterday and the title of the episode was “Smooth Seas do not make Skillfull Sailors”
Yes I could use this proverb for its original intent but it also occurred to me that it warns against the danger of complacency as well. Behaviorally we are programmed to seek out smooth seas. The more people in the water the more confident we become about being in the water.
The smooth sea of the market is back and with it we get increasing complacency. Now that we have avoided a Debt Ceiling fiasco and the Government is back open, there seems to be very little for the financial markets to worry about. The following is list of positive developments:
1. Janet Yellen will be the next Fed Chairperson. She is very dovish and will continue to push for easy monetary policy
2. Global Central Banks continue with their easy monetary policies
3. The public is not worried about a Geo-Political event
4. Institutional investors remain under allocated to equities
5. Economic Growth is fine – not good enough to stop Fed Stimulus, but fine
6. Earnings continue to beat expectations
7. Active Managers continue to chase the benchmarks which typically causes year end buying
8. Real Estate Prices have improved significantly helping to increase positive feelings from the Wealth Effect
9. Some of the Perma Bears are turning Bullish
I could go on, but it seems that the market seems to be in a bit of a sweet spot for now. Hopefully the sea will stay smooth for a while, but the more people come to expect calm waters the less prepared they are when the sea turns rough. I will continue sailing, but as usual keep on the lookout for developing storms.