I just got back from Texas, where I caught some of the optimistic fever that greets visitors to the Lone Star State. I know, of course, that anything I picked up there was strictly anecdotal. But it reminded me of something that’s been brewing in my head: I’m beginning to believe that I live in the gloom capital of the world. On Wall Street, if things are good, that’s bad, because the Federal Reserve will keep raising rates; if things are bad, that’s bad because analysts’ expectations won’t be met. This is positively ridiculous. You can talk yourself into anything bearish with that view. It’s a mental trap put out by the bears themselves, and so many of us fall into it unless we leave the vicious vortex and venture to more friendly confines. (Although, admittedly, hanging out in Cowboy country may not be so friendly for me as an Eagle season ticket holder.) Let’s examine this mistaken circular reasoning that has captured the minds of so many investors — and, most certainly, traders. First, stocks do not trade on current expectations. If that was the case, many of the stocks of companies that have already reported would be down, not up, and certainly not up substantially. Second, if things do cool — and in many cases, they still haven’t — then we will no longer have to fight the Fed. That’s something, rarely, if ever, works as we saw from last year’s performance. Third, we can only marvel at how things can shift so fast in this market — shift in favor of the bulls, not the bears. So many of the big misses amounted to nothing but buying opportunities as soon as three days later. No reason to exit. Therefore, I look at the market like this: If companies report weaker earnings, they most likely will benefit from a conclusion of the Fed tightening cycle, which I believe will happen this year. If the numbers are sensational, then we are thrilled to own them. We own only a handful of stocks that benefit from an economic slowdown. Those, frankly, are the ones I…
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