It’s ugly. I’ve been in the markets for almost 20 years, and I’ve never seen such a hostile relationship between stock market bulls and bears. It’s getting personal. People are getting unfollowed and blocked on Twitter. Reputational capital is a bit like real capital in that it is to be conserved and not spent too foolishly. But people have been spraying it all over the internet — with potentially disastrous results.
The divide can be seen in the American Association of Individual Investors survey, which shows the percentage of respondents who are “neutral” on the outlook for stocks falling toward historical lows. In other words, people either have very strong bullish or very strong bearish leanings. There is no middle ground.
The bulls are in the midst of one of the greatest winning streaks of all time, and are acting like it’s just getting started. The bears have a reputation for sounding smarter, and are in possession of every reason in the world why stocks should decline, but they are powerless to stop the wall of money flowing into the market, often into indexes.
It is tempting to believe one side will be proven right and the other humiliated, but the reality is that the bulls and bears both usually get to be right, just at different times. All this is exacerbated by the fact that the current trend has been in place for so long. Even though the bull market started in 2009, it hasn’t been a smooth ascent. There was plenty of debate about the market’s future in 2011 and 2012. That’s what the stock market is like most of the time — you get to be right for a while, then I get to be right for a while. The longer a trend is in place, the more bitter and angry one side gets and the more arrogant the other side gets. Humility is in short supply these days.
There is a political subtext to it as well, which makes it even worse. You would think the liberals are the ones who are bearish, and conservatives are bullish because of the Trump administration’s business-friendly, deficit-spending policies. But you have to separate market sentiment from political sentiment. For example, liberals buy technology stocks while conservatives short them in spite of Trump, not because of him.
Conservatives tend to be fearful about the future and are usually suspicious of stocks unless they are at extremely low valuations. They tend to be value investors and often have an affinity for precious metals. They often find themselves on the sidelines, worrying about bubbles. They like to buy dips and tend to believe in mean reversions. They think the worst thing in the world is to be caught long in a correction. They think the bulls are idiots that are going to lead us all off a giant cliff.
Liberals tend to be more optimistic, and many of them are die-hard trend-followers. They like things like technology and venture capital and worry a lot less about valuations, if at all. They are classic growth investors. They would rather be invested than uninvested. They deplore things like gold, accusing its adherents of being conspiracy-driven fearmongers — or worse. They think the bears are idiot cavemen who are antagonistic to technological or societal progress.
Has it ever been this bad? I think the last time it got close to being this toxic was in the late 1990s during the dot-com boom, which was another example of a trend seemingly going on forever before coming to an abrupt end. It’s worth pointing out that the biggest promoters of that particular bubble saw their reputations ruined. That is the thing about Wall Street. Nothing goes on forever, and when markets turn it’s not hard to pick out the folks that are going to end up on the firing line.
I think it’s worse today than 20 years ago, because in addition to arguing about the stock market, we have these additional debates about market microstructure, such as indexing, high frequency trading and exchange-traded funds. I don’t have a very lengthy block list on Twitter, but it mostly consists of Bitcoin bugs who got out of control during that particular orgy of speculation late last year.
It’s just the stock market. Calm down. The problem is, when this thing turns there will be scores to settle after the bulls spent the last three years not-so-graciously gorilla-dunking on the bears on a daily basis. I’m sure some folks are out there taking screenshots of tweets as we speak, plotting their revenge.
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Jared Dillian is the editor and publisher of The Daily Dirtnap, investment strategist at Mauldin Economics, and the author of “Street Freak” and “All the Evil of This World.” He may have a stake in the areas he writes about.