Not Afraid

Around the turn of the century a bandit rode in from Mexico, robbed a small Texas bank, and fled back across the border. A Texas Ranger picked up his trail and nabbed him in a Mexican village. The bandit spoke no English and the ranger no Spanish, so another villager was asked to interpret.

“Ask him his name,” said the ranger.

“He says his name is Jose,” said the interpreter.

“Ask him if he admits robbing the bank.”

“Yes, he admits it.”

“Ask him where he hid the money.”

“He won’t tell me.”

Leveling his pistol at Jose’s head the ranger said, “Now ask him again where he hid the money.”

Jose quickly blurted out in Spanish, “The money is hidden in the well in the village square.”

“What did he say?” demanded the ranger.

The interpreter replied, “Jose says he is not afraid to die!”

The translation and interpretation of the news can play a crucial role on Wall Street. This is especially true when it comes to public perception; and the media plays a dominant role when it comes to shaping the public’s perception. And their modus operandi is clear. For instance, everyone has heard of the classic, “Is the glass half full or half empty?” Well, when it comes to media translation and interpretation it’s almost always half empty. Bad news sells newspapers, gets more TV and radio time . . . good news doesn’t. I mean think about it, only a few weeks ago the media said that a Trump presidency would be devastating for the stock market and the economy. Now, because stocks have rallied, pundits see a boom. As the erudite King Report notes, “Wall Street is not rational; it is rationalizing.”

Keeping the translation and interpretation theme in mind, come with us now in the Mr. Peabody “WayBack” machine (WayBack). The time was May of 2015 and the S&P 500 (SPX/2213.35) had peaked around 2135. Subsequently, the index “back and filled” between that level and roughly 1800, on increasingly wrong-footed negative media news, until July of 2016 when it broke out to the upside and tagged ~2194. We counseled that upside breakout was significant and advised increased equity exposure. Silly us, because the SPX declined back to its 2080 – 2100 support zone shortly thereafter. Undeterred, we continued to recommend the accumulation of equities, believing another new upside “leg” for this secular bull was in the offing. So let’s examine what has happened.