Market Shamanism

E. O. Wilson's, Consilience: The Unity of Knowledge, is one of my favorite books.

What can we truly know about the creative powers of the human mind? The explanation of their material basis will be found at the juncture of science and the humanities." (P. 223)

To me, the above is a statement (I really just did open the book--it is sitting atop the piano) sums up my view on many things. It reminds me, too, of the da Vincian principle of Connessione.

NG mentions looking at the commodity intensive, Australian/Canadian markets for clues on the movement of commodities. I'll add Brazil to that list, too. I think that it makes good sense to look for these things--recognizing the connections and relationships. If I were to reflect back on the last 24 months and state what I thought was most valuable from my time as a market observer, I would have to say it is the cultivation of my awareness of the interrelatedness of asset classes.

I know that many pure market technicians display a deep disdain for fundamental issues. However, I'm a good enough chart reader to know that the steep horizontal and vertical drops in a stock's price are not always presaged by technical action. Oh, to be sure, one can go back and point out 'this' or 'that'--but in general, rocket launch and Acapulco cliff dive stock movement indicates surprise.

Developing an intuitive understanding of (inter)market is important. I know that is not the realm of the average investor. That does not mean, however, that the average investor ought to ignore his/her education on some very basic principles on currency, commodities, interest rates and sentiment.

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Perhaps I'm wrong on the following, and I would welcome correction. 'They' say that your asset allocation between stocks/bonds should be predicated by your age. If you are 30, you should have 30% of your assets in bonds. If you are 60...60%. Now here is my observation. Bonds are currently their own bubble world.

Certainly there is a fundamental reason for the incline in bond prices--we were simply in an interest rate cutting cycle. Every investor ought to understand how bonds work: bond prices fluctuate relative to EXPECTATIONS of interest rate movements. I emphasized 'expectations', but I remember quite clearly the goosing on bond prices in expectation of the Fed's ceasing its rate increases. The bond market was wrong for at least 12 months.

We are now at the stage where the Fed has signaled that due to inflationary concerns (read--commodity inflation) it is likely done with cutting interest rates. Well, that to me means that the bond market has topped. Oh, and I should add that bond prices were goosed by the 'flight' to quality, too. So if you are 60 and have 60% of your portfolio in bonds, wouldn't you want to reduce your exposure a bit if there is an expectation that rates will potentially increase and the flight to safety issues are tempering?

I ask this as much as a rhetorical question as anything. Remember that my blog is entitled The Perplexed Investor--and this particular issue is perplexing to me. The title of this post is Market Shamanism. The traditional role of the Shaman is to serve as a 'bridge' between the experiential and supernatural world. The Shaman was the ultimate master of Connessione, for he was an expert reader of 'signs in the natural world. Having an abundant knowledge--handed down from generation to generation--enabled shamans to serve in their revered (sometimes feared) role. If I were a Wall Street expert, I would have a newsletter called The Market Shaman!

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We should all aspire to be market shamans--meaning astute observers of the market. The technicals are the chicken bones that we carry in a special bag. The fundamentals are literally the ground upon which we walk. Though I've not heard the term in this cycle, I'd like to say that we are at an inflection point--and the fulcrum is commodity prices. Whichever way they break, they will rattle our chicken bones AND the ground upon which we walk.


Note: I'm in countdown mode for my dinner party. I will likely not complete the WSS until Monday. Just in doing my shopping (which has taken a cumulative 6 hours over 2 days), I'm reminded that my foot is still in recuperative mode. But, this dinner party fulfills a few of my resolutions. It is also my first foray into Cuban cooking. I'll give a report on Monday.

Sometimes we take things for granted. Here's the definition for Memorial Day from Wikipedia:

United States Federal Holiday that is observed on the last Monday of May (observed in 2008 on May 26). It was formerly known as Decoration Day. This holiday commemorates U.S. men and women who have died in military service to their country. It began first to honor Union soldiers who died during the American Civil War. After World War I, it was expanded to include those who died in any war or military action.