I wasn’t sure what to title this one. I do try and find something that I think will catch people’s attention and get them to at least start reading, and wasn’t sure if the one word topic I planned to write about would be enough. Complacency. It’s one word, but it communicates a lot. One definition includes, “a feeling of quiet pleasure or security, often while unaware of some potential danger, defect or the like; self-satisfaction or smug satisfaction with an existing condition, etc.” Let’s think about this, as there are two parts to that sentence and I think we’re experiencing both of them across much of the investing public, and the public in general.

I flew to Florida recently to see my parents, and started thinking about this at the airport. I was more convinced once I was there. And as I noticed my charts showing some ugly S&P patterns, to me anyway, the idea of writing about complacency seemed obvious. “Why all the negativity?” you ask. After all I’m the guy that’s called all the sell-offs healthy corrections, even though every one of which seemed to be, at the time, the ugliest one yet. People were pretty happy and even complacent then; so what’s different? I’m not going to go into yield curves and all that again. What I am going to do is try and explain why I keep getting more reinforcement that something’s different this time. And if I’m wrong, and we just start another huge leg up, I’ll chalk it up to another wrong call among many in my career. But I’ve got an argument and a perspective (Bill’s favorite word) that I’ll stand behind should the same set of circumstances arise again…even after that monster rally, if and when it appears.

Complacency to me, in part, shows itself when everywhere I’m going I’m seeing new big stuff. Now, I’m a huge believer in the need for infrastructure rebuilding. And I’d be super happy if it all were to start at the same time. That would be some good new stuff. And New York City and everywhere within commuting distance has lots of new stuff; big stuff. Why do I worry? Because it’s not those infrastructure types of big things. It’s things like houses. Lots of small independent contractors buying a house, tearing it down, putting a new one up and selling it. Lather, rinse, repeat. Keep on doing it. The problem is that in these cycles we reach a point where the market can’t support the constant price increase in real estate, and the music stops. Many of these small independents roll all the profit of the last one into the next one. Or like so many of us, put the extra money they find in their pocket into their own house. Either way, we don’t save it. And if the music stops for one of these contractors, they’ve now got a second house, with a second mortgage, and not much in the bank. And all the stuff goes with that market…Appliances, cars, pools, vacations (getting to that…).

The airport also had lots of new stuff. New terminals. With a bunch of new high end stores and restaurants. And crowds in all of them. People spending. I like good times. I was a trader during those legendary fun times. But when everyone is spending, well, I’m a contrarian after a while. And there was no sign of it letting up, from what I saw at Newark airport. Lots of vacation folks. Filled business class seats. Even went to Cabo recently. I don’t think that plane was packed with people needing to fly for business. And the number of new resorts being built was pretty amazing too.

Complacency. You don’t build a new resort when you’re worried people will stop spending. All this fun. And interest rates are still pretty low. The job market is still strong and seemingly getting stronger. We do have it good! And we’re paying little attention to any signs that this perspective of having as much fun as we can, with little regard for spending or borrowing, will end anytime soon. But aren’t we embroiled in at least one trade war? Isn’t there instability (re)building on many international fronts? Aren’t interest rates acting weird? Oh, that one…

Complacency. Many of the most listened to people in finance are saying this time it’s different. There are explanations that the state of the yield curve won’t have the same impact this time. Hmmmm…all these things are lagging indicators, therefore it’s not the yield curve that actually causes it. So the argument extends to saying that the causes are different this time around. Sounds like a New Normal. We’ve done new normal before. Internet bubble. Companies can lose money and we should still buy the stock. Wait! Anyone heard of Lyft and Uber? Sigh…

We can, if we want, look at why I find that S&P chart particularly ugly, since that’s why I think this time’s different. To begin, this is a monthly chart. Remember when I talked about waves and tides? Well, a monthly chart is that tide pattern that rules all the waves. So when the monthly shows something, we need to pay attention. To briefly summarize what it’s showing me; barely making a new high and with no follow through, no positive momentum in the last move up leading to a “divergence” between price and momentum at the top, a bearish engulfing candle at the top,  with all current momentum pointing to declining price.

That’s a lot of stuff. Just like the other “lot of stuff” I’ve been harping on, but a different kind of stuff. Stuff you don’t want to see all together. After all, it’s easy to say one indicator doesn’t really tell the story. It’s easy to say that a couple of indicators can’t always be right. But there are a number of factors coming together here that disproving one or two still doesn’t easily negate the overall argument. And those that are denying many of these things (or worse, not even listening), those that would preach this time is different, that this is a new normal, are demonstrating complacency at its best…or worst. Those who forget history are doomed to repeat it does not just hold for countries and wars. It’s a big factor, I believe, in market cycles as well.

Now obviously, I’ll be right eventually. Like broken clocks twice each day. And I accept that if eventually takes too long, that’s the same as being wrong. But the last time I felt like this was at the top of the internet bubble. People were pretty confident it would all keep going. But all my charts said ‘Sell.’ The person I was working with kept saying ‘Buy.’ For years I’ve told that story and said he was wrong. Looking back now, I think he was just complacent.