My Grandmother from Scotland never served afternoon tea using tea bags. Only fresh tea in a proper teapot would do. When served, loose tea leaves would fall into a guest’s cup, and a collection would always be left at the bottom. Friends and family would gather round as Nana would offer to examine the patterns in each person’s cup for clues to what the future might hold. They were convinced that she had a special gift. I do not remember if Nana was always right; or if she was ever right. I do remember that everyone always listened very carefully. To a degree, much of what we all do on Wall Street is like Nana reading the tea leaves. But, surely we are not just pseudo-psychic fortunetellers. After all, we don’t just look at tea leaves; we carefully study lots of data and draw upon our education and years of experience to reach informed conclusions. We do, right?

Some of us mainly look at past prices to discern what will happen in the future, even though for half a century, academics have argued that past patterns tell us nothing, and security price movements are totally random. Others are dismissive of so-called technical analysis. Instead, they pride themselves on focusing exclusively on important fundamentals: monetary and fiscal policies, GDP growth, corporate profits, demographics, innovation. Yet, it can be argued that everything that’s knowable is already known by all and, therefore, is already priced into the markets. With that said, why is it then that we still have bear markets, crashes, mini crashes and corrections? It is because sometimes things change and often do so quickly. By definition, the change is typically unexpected by the consensus.

It is important to remember, that no one knows what the future will bring. According to Psychology Today magazine, “We think of intuition as a magical phenomenon—but hunches are formed out of our past experiences and knowledge. So while relying on gut feelings doesn’t always lead to good decisions, it’s not nearly as flighty a tactic as it may sound.” Most likely, my Nana’s “gift” was pure intuition: perspective gained from decades of life experiences and observations that formed patterns she recognized, at times, subconsciously. After five decades of real world Wall Street experience, I might have some of that stuff rattling around my head, influencing my view of the current market environment.

It makes me worry about the exuberance that has gripped the markets, and I believe it will end badly. Regular readers will know that my fear is not about Greece, or the Brexit, or a strong-dollar induced U.S. slowdown. Rather, my main concern continues to be the disconnect between the market’s expectation about the outlook for U.S. short-term interest rates and that of the Federal Open Market Committee members. It is an accident waiting to happen . . .

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