Curiouser and Curiouser
by The Algonquin Team, Algonquin Capital
March 2016
âIt would be so nice if something made sense for a change.â
Lewis Carroll â Aliceâs Adventures in Wonderland
âTwas a warm summerâs day in August when equities ventured down a mysterious rabbit hole and into a nonsensical world of uncertainty. Like Aliceâs Adventures in Wonderland, the journey has been confusing, chaotic and at times rather harsh. But unlike dear Alice, these markets donât need magic cookies, mushrooms or strong catalysts to shrink and grow at random. The shifts in investor sentiment take care of that.
In the past eight months, the S&P has experienced four swings of over 10%, including starting the New Year with a dramatic fall only to climb back and finish the quarter pretty much unchanged. With no significant changes in the underlying global risks or economic fundamentals, making sense of these moves is like trying to understand the gibberish at the Mad Hatterâs tea party. As Alice put it, âyou might do something better with the time than wasting it in asking riddles that have no answers.â
The only conclusion we can draw is that uncertainty around the central banks and the health of the global economy has driven investors between the extremes of panic and euphoria. It seems that at every turn we can see the eerie grin of the Cheshire cat reminding us that âcommon sense doesnât really work here.â
While it is easy to get lost in the madness and chaos, one must remember that cooler heads typically prevail. With the exception of arguments with small children, reason can oppose nonsense, and in the long run reason will win.
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