Being an underground investor means always trying to see past the “groupthink.” And it means trying to spot the man in the ape suit before the crowd does (which is always too late).
Right now, one ‘gorilla’ happens to be the junk quality of the banks leading stocks higher. Investors, thirsty for some good news it seems, have drunk the government Kool-Aid and forgotten that the U.S. banking system is essentially insolvent. Another example of mass tunnel vision is the belief that the fractionally slower decline in macro data points means the economy is improving.
A perfect example of this came yesterday when the S&P/Case Shiller Home Price Index, released 30 minutes prior to the commencement of trading yesterday in New York, showed metropolitan home prices slipped 18.6% in February versus the negative 19% reading in January. A significant number of traders and investors took this 18% plunge as an “improvement” it seems, as equities rose on the news.
As Addison Wiggin and Ian Mathias note in the 5 Min. Forecast, “Only in America, only in 2009, can an annual 18.6% decline in home prices signal “stabilization” in the housing market.”