I don’t care, I love it!

What a difference a rally makes.

I’ve had a dozen or so reporters ask me this week why the markets weren’t expressing any real concern about the fact that the government is shutdown. I’d told them all that if this were taking in place in 2011 or even early 2012, we’d have been back to flat-on-year in the S&P already. But it’s not 2011 or 2012, and “headwinds” are now looked at as opportunities rather than as potential black swans. And this goes a long way toward explaining the radical sentiment shift that only a ball-busting 50% risk-on rally can produce.

You may remember the darker days of the recovery period we’re living in when it was considered goofy and stupid to be positive on the stock market.

One of my favorite moments that perfectly encapsulated this pervasive feeling happened in early February. I was reading a story about pension fund managers who, after missing four years of upside, were only now beginning to dip their toes in the water. It hit me like a ton of bricks – I said “This is it, this is where the true sentiment turn takes place.” The guys running massive pools of assets were, slowly but surely, coming out of their protective little tortoise shells.

The rhetorical contortions the managers were putting themselves through so as not to come off as performance chasers were epic and hilarious. For example, how about this baloney sandwich:

“investors are taking short-term tactical advantage of the rising equity premium by, for example, allowing multiasset managers to drift toward the higher end of the equity allocation range.”

LOL, that’s a hundred dollar answer where a five dollar answer would do – anything but admit out loud that they were buying stocks.

Anyway, markets have come a long way and the psychology of the day has almost completely flip-flopped. To do anything less than buy on every dip is now looked at as foolish and pointless. Nobody is embarrassed about their equity allocations these days, and this explains perfectly why the market hasn’t crashed yet a week into the government shutdown.

Here’s my friend Dynamic Hedge, who perfectly captures this moment in investor sentiment:

The taboo of optimism has completely eroded. It appears that people are less afraid to admit that they are bullish on stocks than any time in the last four years. Even as the US government is reaching Euro-zone levels of political dysfunction with a potential default weeks away, the markets behave as if it were just a regular week. Why is this? The shutdown is a political gambit — one that would never be undertaken if stocks were 30% lower. In addition to that, most seasoned political observers have communicated the conclusion that the shutdown amounts to not much more than a branding stunt for the Republican party. So the primary perceived risk is missing a pullback and there is a strong consensus that the shutdown is merely political theater. What happens if the consensus is wrong and the situation devolves to Francis Underwood levels of ego brinkmanship? Things will get surreal in a hurry. Asset prices are the primary driver of sentiment. Sweeping reforms will be forgotten if asset prices dive.

Josh here – I gotta tell you, I much preferred it when I was getting mocked each time I said Get Your Shit Together or Optimism as a Default Setting or Their Risks are Our Opportunities or No, It’s Not 1999. The bandwagon has gotten more crowded, stocks are up 19% this year with only 5% earnings  growth, which means that the multiple expansion from improving sentiment has done most of the heavy lifting.

I’m not sure how thrilled I am to currently be holding such a popular opinion these days.

But in the meantime, investors don’t care about the shutdown and they love the possibility of the dip that may come as a result of it. Quite a change in attitude from just a year or two ago.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Be Rich Now! commented on Sep 22

    … [Trackback]

    […] Here you will find 27500 additional Information to that Topic: thereformedbroker.com/2013/10/06/i-dont-care-i-love-it/ […]

  2. DevOps Services commented on Jan 12

    … [Trackback]

    […] Read More Info here on that Topic: thereformedbroker.com/2013/10/06/i-dont-care-i-love-it/ […]

  3. Kimber Firearms For Sale commented on Jan 14

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2013/10/06/i-dont-care-i-love-it/ […]