"The human mind does not do well with unbounded concepts – this is why it is so difficult for us to imagine infinity or our ever-expanding universe – yet sometimes even a chart can psyche us out when we create limits and boundaries that are not really there."
Believe it or not, that is an actual quote from an actual note written by an actual analyst.
Specifically, it’s from Raymond James strategist Andrew Adams and apparently, the idea is that investors will be fooled into thinking stocks can’t go higher because they don’t understand that if they just click and drag, they can adjust the scale on their S&P charts.
I was only half joking when week I wrote the following last week about how pundits are characterizing Wall Street’s year ahead outlook pieces:
But here's the thing: you can't very well malign someone for trying to tell you about all the bad things that can happen, then turn around and lampoon the very same group of people for telling you that things are likely to keep going reasonably well. Because that doesn't leave analysts with very many options. If dour outlooks are examples of "fear sells" and cautious optimism is just "yesterday repackaged as tomorrow," well then what's left? Does that mean the only thing that's acceptable is unbridled optimism?
The point there was that bears are typecast as fearmongers and guarded bullishness is being labeled as something akin to saying nothing at all, which means the only way to avoid being seen as an alarmist while simultaneously saying something people will find interesting is to project risk assets rising to infinity.
I’ve provided countless examples of bears being characterized as literal goblins and the “yesterday repackaged as tomorrow” quote is from a Wednesday tweet blasted out by a widely-followed member of the mainstream financial news media, so I’m not constructing a strawman here.
What I did not expect was to actually see someone unknowingly take me up on the “unbridled optimism” bit by literally suggesting that investors’ problem is that they cannot conceptualize of an “unbounded concept” like S&P target = ∞.
And this gets better. Here is Bloomberg’s Andrew Cinko describing what the above-mentioned Andrew Adams (so this is a two Andrew affair) does to support his contention that we are all psyched out by the arbitrary scales on our charts:
Adams decided to change the boundaries of the S&P 500 chart to illustrate that this bull market is not unusual -- nor would a rally to 3,100 by 2020, 7,000 by 2030 or 10,000 by 2035.
Quoth Andrew, quoth the other Andrew:
Clients will look at a chart of stocks and see the upper edge of the chart area nearby and conclude stocks have nowhere to go but down.
No. Sorry, but just no. No one looks at a chart and believes that their gains are somehow constrained by a close encounter of the y-axis-kind.
And if there is a human tendency to see an “up and to the right” chart that encompasses nine years of market history and conclude that a correction is likely imminent, that tendency has nothing to do with “seeing the upper edge of the chart area nearby” and not understanding that the y-axis can adjust in the event stocks go higher and everything to do with realizing that because markets are supposed to be two-way animals, “up and to the right” for nine years doesn’t make any sense.
If he weren’t dead, you’d be forgiven for thinking that the quote excerpted here at the outset came not from Andrew Adams the Raymond James strategist, but from Douglas Adams the satirist.
Which when you think about it, makes a lot of sense in this galactic-themed context for all kinds of reasons, not the least of which is that the message for investors seems to be this: “Don’t Panic.”