The mood is changing five years into a bull market.
From my perch as an investment adviser I sense a subtle shift. It isn’t necessarily one toward obvious risk-taking. The Great Recession seems to have squashed unbridled optimism. No, this shift is more subtle and it will have implications.
I believe people are being lulled into a sort of trance-like state of investment complacency. For sure, this trance has set in slowly, sort of like the proverbial frog in the pot of water. Yet, to me, the signs of complacency are evident.
With interest rates held down for so long and with the Fed supposedly printing money (hint: they really aren’t and feel free to call me if you’d like to understand why not) too many people are convinced that inflation and higher interest rates are just around the corner.
With this looming threat, as the logic goes, bonds are now viewed as a terrible place to invest. And, as logic must then dictate, the only other place to invest money is either in real estate, gold or stocks.
Since real estate isn’t really that easy to hold for speculative purposes and gold appears to have lost its magic, stocks are seen by many as the only game in town. The consensus-driven investor often rhetorically asks — as if the question alone is enough justification for the stock market’s rise — where else is money going to go? At that point in the conversation, a resigned glaze forms over the eyes of even the typically skeptical.
Of course, a trance like this always picks up steam as months of gains turn into years of profits. I can sense that people know that something’s not exactly right with the whole picture but they still just can’t seem to turn away. Financial trances are quite easy to spot. Unfortunately, they are particularly hard to avoid.