The Problem With Being a Perma-Bull

The problem with being a perma-bull is that there isn't much room for reflection, or introspection, within one's countenance.

Conditioned by the modern phenomenon of economic growth, perma-bulls have never met a dip they didn't like (the positive skewness of the market leads to a certain complacency). There isn't much pause to consider the value of an asset, or the underlying health of an economy. They are generally dismissive of anything negative, and fail to understand that they operate within an industry that has every incentive and predilection to being bullish. They also tend to be practitioners of momentum (some would say herd followers), and contra to their stated economic worldview (free markets), are great believers in the value of the central bank (emperor with no clothes) to bail them out (they have spent their whole careers succoring on the teet of monetary stimulus).

Interestingly enough, practitioners of this science tend to be American and/or equity managers, while practitioners of the counter-stance (perma-bears) tend to be British and/or bond managers.

I spoke a little about some of the traits of a perma-bear the other day, but in the wake of being so harsh on perma-bulls, it would be remiss of me not to expand upon those thoughts here. Let me just add that the positive skew of the markets has killed perma-bears over time. It is one thing to identify and talk about structural flaws or imbalances in the system, but it is a totally different thing to get your timing right in acting upon those concerns. Markets and economies get out of whack periodically. Minsky rightly pointed out that imbalances build over time during periods of general stability. He also pointed out that markets and the capitalist system are inherently unstable. In this environment (and especially after a crash), it will generally pay to have a bullish bias. Besides, people like a positive person over a naysayer anyday. At this point I don't see any repudiation of the phenomenon of economic growth, and so that adds to the case toward a positive skew. Having said that, I am of the opinion that the general growth outlook for the future will be more muted than what we have seen over the recent past (1980-2007). As usual, there will be winners and losers in that environment. The trick will be to pick the winners and avoid the losers.