The Financial Markets Confidence Trick

Featuring Peter Atwater

Peter Atwater left behind a distinguished investment banking career to build his financial consulting operation and he has spent the best part of the past decade examining the role of confidence in markets. The biggest challenge is to understand when the market has reached its top as well as knowing when things have hit the floor and in this interview, Peter explains why some investors are psychologically better equipped to handle it than others. Filmed on June 29, 2017, in New York.

Published on
10 July, 2017
Topic
Monetary policy, Psychology, Sentiment
Duration
61 minutes
Asset class
Currencies, Bonds/Rates/Credit, Equities
Rating
45

Comments

  • TS

    Timothy S.

    15 9 2017 22:03

    0       0

    Awesome interview. I share a lot of the same beliefs as Peter. Grant should be nicknamed Goldie, as Gold is his go to question.

  • DY

    Damian Y.

    9 8 2017 11:47

    1       0

    Tell a Bitcoin cult member that it's a bubble and see how they react.

  • JS

    Jeromy S.

    21 7 2017 05:31

    1       0

    Let me start by saying, GREAT INTERVIEW (as always Grant! Even though I did see you get a little shaky when he started dissing gold and I am SOOOO glad that you pressed him. As a viewer, I was asking the same questions. Felt like I was there was with you). Solid performance. I love RTV and the perspective that it gives. However, my personal opinion as a SUCCESSFUL business owner that does NOT believe more government is the answer to everything and another one of those NRA card carrying Americans since birth...the last bit about the coup possibility?!?!?...WOW! Never thought about that.

  • AC

    Andrew C.

    19 7 2017 08:58

    0       0

    Any body got the link to Kevin O'Leary on CNBC - "go long the VIX?"

  • PS

    PD S.

    18 7 2017 19:16

    0       0

    great interview as always by grant, and peter atwater is da man ;)

  • CM

    Chris M.

    17 7 2017 17:50

    0       1

    The only thing I would disagree with is that people need to say "it's not a bubble" for it to be the top. With 3 bubbles in 17 years, believe we are more attuned to bubble identification and less naive that markets run forever. Although some are calling the top, and others say it is not, either way this will not by a signal of a bubble top in this cycle.

  • VS

    Victor S.

    17 7 2017 14:13

    2       1

    Sad report on peter -nothing he said could i understand or convert to make me 10 cents...also any man who does not understand Gold ,with its long history ,and can say"the fed follows the market setting rates" is really not in the business! He Should be a professor at Columbia U. The MARKET does not keep fed funds at zero for 7 years while CPI is 1.7% compounded. From 1926-2008 FF trade at 100 bps ABOVE CPI not below?

  • JL

    Jim L.

    15 7 2017 05:46

    5       3

    Please... more actual money managers/traders... ie risk takers. I'm not suggesting there aren't many other people with extremely interesting insights, I'm just asking for more of the risk takers. With all due respect to Peter, he isn't a risk taker. If you don't have money behind your ideas, I am sceptical at all times. Next I'll see the permabear Jesse Felder interviewed. One of the biggest frauds out there. Constant bearish scepticism does not equate to intellectual ability and most certainly doesn't equate to investment success in a ripping bull market. You might hate the bull market but it doesn't have to go down because you hate it.

    PLEASE... more of the Carson Block's, Lacy Hunt's, Kyle Bass' and many of the other great interviews you have done with actual risk takers.

    Rant over.. thank you

  • AL

    Alex L.

    14 7 2017 02:19

    2       0

    My mom just told me the other day she had learned about the FAANG acronym... this interview made me completely reconsider the meaning of that.

  • NA

    Nickle A.

    14 7 2017 01:41

    1       0

    Absolutely Brilliant. One of the best of 2017, by far. Will be great to bring him back early 2018. Bravo G&R!

  • CY

    C Y.

    13 7 2017 20:16

    1       0

    what a prescient conversation. Tesla gets slammed right after the conversation gets released.

  • HB

    Heini B.

    12 7 2017 15:36

    3       0

    Really enjoyed this and as a side note; my father asked me about Bitcoin the other day

  • VP

    Vincent P.

    12 7 2017 01:51

    3       0

    Well ok, if a 260% upside move off the lows is a bear market rally I'm all in!! Sounds like a frustrated Bear who missed the move to me. Agreed that confidence, when shaken will trigger volatility and new levels in the market but to suggest a military coup in the US is a little outrageous. Although, if the UK can possibly have 3 elections in 18 months perhaps anything can happen. The way thing are going in DC, it's not inconceivable to have a recall vote following a change in the Constitution!! Nuts hey????

    • GM

      Greg M.

      12 7 2017 15:23

      3       2

      I believe a military coup is very possible and a very good reason to fear a large standing army. The United States is gaining the ingredients for this to happen. All you need is an enterprising, charismatic general and economic / social upheaval. You must factor in the military worship around the states as well. The people are conditioned to mindless thank / support the troops.

  • MR

    Mark R.

    11 7 2017 20:42

    8       0

    So mood drives price. Not the other way around.
    Taking that point of view you can gain valuable insight only if you accurately gauge (measure) mood. Talking in generalities about mood does not seem helpful. Often we point to headlines that in hindsight appeared to be the signal that the “top is in”. I wonder about all the silent evidence that we do not see or hear. What I mean by that is all the headlines that could well have, in hindsight, been chosen as the signal of a top, if a top had occurred at that time. As humans we look for reasons and correlations and hindsight gives us plenty to choose from.
    Peter’s proposes that we need to ignore emotions and be objective by establishing criteria and not letting our emotions influence our actions. I don’t see how that is possible for a human. Trying to be “objective” we believe that we are using rational thought when in fact our thinking is still heavily influenced by our intuition. And, for me, that seems to get worse with age. I have gotten so risk adverse in my old age that I often feel a sort of paralysis.
    What I would like to have seen from Peter is how he “objectively” identifies mood. Some sort of concrete measurements that can charted over time. Show me a graph!

    • DS

      David S.

      11 7 2017 21:52

      3       0

      Excellent comments. It is always possible for Mr. Atwater to have a correct intuition and support it by "mood" analysis. If so, it is not transferable or objective. DLS

  • DM

    Daniel M.

    11 7 2017 16:15

    1       0

    Is his suit doing that in real life or is that just poor camera work?

    • MS

      Matt S.

      12 7 2017 05:01

      0       0

      it's probably the pattern of his suit material is messing with the compression of the video and creating video artefacts

    • DM

      Daniel M.

      12 7 2017 16:36

      2       0

      Could be. I'm actually leaning more towards the possibility that he's actually wearing a suit made of LCD screens and he's decided to play blue static on them.

    • JL

      Jim L.

      15 7 2017 05:37

      0       0

      His suit was the most interesting thing about his interview.

  • BB

    Bob B.

    11 7 2017 15:16

    2       1

    #1 Rule Don't Fight the Fed
    #2 Rule See Rule #1

    The ideas he is proposing may eventually happen but what about the idea of first a melt-up in the market. The Fed will not give up and they still have plenty of ammo. Seems like right now there are more people looking for the melt down in the market and usually the crowd is wrong. Or hey maybe I am just listening to the smart people. :)

    • CU

      Clay U.

      12 7 2017 15:09

      2       0

      Honest questions, not trolling. What % correction on the S&P convinces the FOMC to stop hiking and abandon the much talked about balance sheet wind-down? Would an about face of that magnitude inspire confidence, shake confidence or have no effect? Does the Fed have more ammo, less ammo or just plain different ammo than they had during the last two 50% bear markets? Rules #1 & 2 have made a lot of people money for a long time, and I imagine they will continue to work until they don't.

  • TH

    Timo H.

    11 7 2017 06:19

    16       0

    This was a useful reminder of some basic facts. Numbers don't mean everything and the psychological factors really determine the turning points. This time, we may well have the biggest confidence bubble ever at hand.

    To me it looks like the confidence the market has today is of sick nature. Everybody seems to be chanting like this: "Yes, we're in uncharted waters. There will be big trouble. Our standard of living is declining. Our pension system is toast. Our kids can't afford buying a house. Etc... However, whatever happens, the central banks will save us. There will be money for everyone."

    If we get any increase in inflation, this sick faith in CB omnipotence will be gone overnight. The market will realize all at once, that what we thought was a friendly fireman putting out the mysteriously started fire, was actually the arsonist. That's what I call "loss of confidence."

  • KA

    Kevin A.

    11 7 2017 05:10

    0       0

    NO F'N WAY! Did Peter just say, "You have to buy gold, because... jock itch"?

  • KA

    Kevin A.

    11 7 2017 04:19

    2       0

    Here we go! Almost 3 years in and someone on Real Vision mentions Socionomics. But what to do with it... Learn It, Live It, Love It :D

    How else would determine that the entire crypto revolution has taken place in large degree wave 5 and is a result of technological exuberance. Or that record spec positions in PMs likely confirm a bear market rally. Or that jeggings means the skirts have completely disappeared (my favorite... for those under 150lbs)

  • PN

    Paul N.

    11 7 2017 01:38

    2       0

    Shout-out to @StockCats!

  • RA

    Robert A.

    11 7 2017 00:26

    1       1

    This was a great one and comes at it all from a very interesting angle. Loved the Jesus Christ Superstar analogy to Hamilton. Tongue in cheek alert, but if the Populists might go for a Military (General) I assume, why not Elon Musk or Jeff Bezos stepping in----Trump steps down to save his Brand and empire and Elon or Jeff step up to save his empire in Elon's case and to hyper expand his empire in Jeff's case.....and, of course, to save the people.

  • RA

    Robert A.

    11 7 2017 00:26

    0       1

    This was a great one and comes at it all from a very interesting angle. Loved the Jesus Christ Superstar analogy to Hamilton. Tongue in cheek alert, but if the Populists might go for a Military (General) I assume, why not Elon Musk or Jeff Bezos stepping in----Trump steps down to save his Brand and empire and Elon or Jeff step up to save his empire in Elon's case and to hyper expand his empire in Jeff's case.....and, of course, to save the people.

  • DS

    David S.

    10 7 2017 23:12

    9       2

    I rarely give a thumbs down, but I did this time. Mr. Atwater's confidence indicators are not different than Buffett's buy when everyone is selling, sell when everyone is buying. A more likely political solution in the US will be middle of the road Republicans and Democrats will work together to get the peoples' business done. A five year bear market rally? Europe is scared of a populist uprising after all the problems they see in the Trump Presidency. The US military is popular and competent, but I do not think that they wish to run a bipolar electorate . They are smarter than that. DLS

    • HC

      HJ C.

      11 7 2017 02:42

      7       0

      I may be naive but I just don't see the military breaking the oath to defend the Constitution. I don't see Americans near ready for something like that.

      On a side note: I may short sunscreen after watching these two onscreen however.

    • IH

      Iain H.

      11 7 2017 12:56

      1       0

      It could be the election of a Military General not coup.

    • DS

      David S.

      11 7 2017 13:06

      3       1

      Mr. Tillerson and General Mattis would both bring a wealth of experience to the Presidency. However, they would both have to deal with a dysfunctional Congress and bipolar electorate. DLS

  • DS

    David S.

    10 7 2017 22:46

    1       1

    The free market nominal price is the only objective price. There is, nor has there ever been a real price. DLS

    • RM

      Robert M.

      11 7 2017 02:22

      6       0

      Well you best not trade in currencies or gold with that belief.

    • DS

      David S.

      11 7 2017 12:53

      0       0

      You should trade on an expected price. In your mind that might be the real price, but whoever sold you the gold, currencies, stocks, bonds derivatives, etc. has a different expected price. That what makes a market. Thanks for your comment. DLS

    • TS

      Thomas S.

      12 7 2017 12:26

      1       0

      So, if a transnational cartel with unlimited capital is setting prices at the margin, would you call that the free market price? Just askin'...

  • M

    Mark .

    10 7 2017 22:14

    8       0

    That was excellent. Having said that, I don’t get why he doesn’t have a fat position in gold. If you have a level of real interest rates that doesn’t misallocate capital it breaks the government and the government keeps piling on debt going into a demographic disaster every single day. Isn’t gold pretty safe here? What else is a good buy right now?

  • JV

    Justin V.

    10 7 2017 21:52

    5       1

    Paul reminds me of Martin Armstrong. Get him back please Grant!

  • AH

    Andreas H.

    10 7 2017 21:31

    5       2

    Great Interview, great framework, but I come to totally different interpretations. Confidence is extremely low, read Jim OShaughnessy and his 20 year mood swing analysis of the last 200 years. We got a confidence low especially on value stocks right now, it is 1982 all over again and the outrage I get here on RV since Feb 2016 being bullish tells me I am right! Same with selling bitcoin, the outrage tells you a lot! Same with Trump, compare to Reagan (same bad numbers...)... with Trump the outrage is the worst, so what does that tell us?

    • PN

      Paul N.

      11 7 2017 00:22

      10       0

      Outrage of who? In a world of echo chambers, getting lashed out at by a minority group doesnt indicate overall market sentiment. You can go to /r/investing on reddit and see tens of thousands of passive investing bulls. Or you can come here and see the bears.

    • AH

      Andreas H.

      11 7 2017 04:45

      2       3

      Well, here are the "experts" I assume, and as long experts are bearish the stock market is in good shape. The whole www and experts where bearish ("sell everything") Feb 2016 and still are. Stocktwits, Twitter, Zerohedge, Hedge-Funds Managers, Gold Bugs. "Wrong" pols for Trump, CNBC, NBC (totally underestimating Trump, he is not going away, he stays!), Bloomberg "Experts" still bearish ("the stock market is expensive"). Well, maybe the whole www and media is an echo-chamber, but exactly this is my point. It is 1990 or even 1982, not 1999 and not 2008! Buy micro cap value stocks with a little momentum and you will be in good shape (Invested 100% here!!!). Not saying there will be no vol, DDs of 20% will come but if you can not stand the heat stay out of the kitchen...

    • PN

      Paul N.

      11 7 2017 07:24

      7       0

      If you think "experts" here and elsewhere are of all the same quality with the same opinions on every issue it makes me wonder why you would even be here.

    • WM

      William M.

      23 7 2017 17:37

      1       0

      It is hard for me to believe Andreas that you see this as 1982 all over again?! There is no comparison. Take a look at the near parabolic dollar inflation, debt generation and historically low interest rates, collapsing demographics etc etc. I also not class RVT readers along with the vast majority investors out there. The ones I work with (professional types) are still in the ETF market. I am one of the few "bears". Its all about black swans Andreas...hopefully you are thinking about all the things that could trip up this market.

  • MM

    Michael M.

    10 7 2017 21:09

    15       0

    these market guys who like to look back centuries in terms of markets need to look back centuries in terms of demography. We are in an unprecedented era of demographic change, the idea we can have human beings as interchangeable economic units as if we were a standard futures contract needs to be seriously evaluated. In my humble opinion this is not taken nearly seriously enough.

    • DS

      David S.

      11 7 2017 13:17

      2       0

      I agree, but the ground beneath our feet is changing even more rapidly with globalization, hyper-connectivity, robots, Amazon's only growth counts. See Dee Smith interview. No wonder it is tough out there. DLS

    • TS

      Thomas S.

      12 7 2017 12:43

      0       0

      AI is the greatest threat to humanity extant. Why? Because, ultimately, it is uncontrollable. It has destroyed our capital markets. Folks in this forum should be able to comprehend at least that. If not, you really should get some help with that psychopathy issue.

  • RS

    Richard S.

    10 7 2017 20:42

    6       0

    I'm as bearish as anybody - and enjoyed the presentation immensely - but "Bear Market Rally since 2009 ??? new highs in all indices ?? Really don't get that ??

    • DS

      David S.

      10 7 2017 22:53

      3       0

      I don't get it either. In the last five years the S&P is up 79%. What deflator could Mr. Atwater be using? Like many investors I think the market is overvalued, but it is hard to call it a bear market rally. In he last year the S&P is up 14%. This is flat? DLS

    • CU

      Clay U.

      12 7 2017 14:58

      1       0

      Real S&P 500 was flat from the peak in 2000 through election day. https://www.advisorperspectives.com/dshort/updates/2017/07/06/the-s-p-500-dow-and-nasdaq-since-their-2000-highs

    • DS

      David S.

      28 7 2017 08:11

      0       0

      I do not think that is the bear market rally that is referred to here. Your chart, however, shows the real S&P up 11% from 2000 through June 2017 and not flat. DLS

    • DS

      David S.

      28 7 2017 08:13

      0       0

      Sorry, the real S&P is up 11% from the peak of 2000 through June 2017. DLS

  • GG

    Gerald G.

    10 7 2017 20:22

    7       0

    I really hate to say because I (like most people) like to handicap a direction but... the paradox of this "reluctant" bull market (where confidence is low yet monetary distortions are forcing the market higher) might mean the worst of all worlds... protracted sideways stagnation. In that scenario being long or short are BOTH loosing strategies (and don't markets always try and do the thing that costs the most people the most money)? I sure hope this isn't the case.

    • GG

      Gerald G.

      10 7 2017 21:08

      7       0

      I should clarify that I'm suggesting the possibility of protracted sideways volatility where markets can't sustainably go up (because the economy stays near stall speed) and where markets can't sustainably go down (because of ongoing Fed intervention).

    • PN

      Paul N.

      11 7 2017 01:25

      4       0

      Turning Japanese?

    • TS

      Thomas S.

      12 7 2017 13:08

      1       0

      You said it. If the QE were strictly limited to treasury debt of each CB's own country it just might allow a transition toward a more sane monetary system. But the CBs are already stealing real assets via QE and it will be almost impossible to rein them in. In a more sane world we would be operating under free market monetary standards where all participants are free to choose what kind of money to accept, not just debt based bank-created currency. Unless folks wake up and put an end to the tyranny of a strictly debt based monetary system enforced by a state sanctioned private cartel, there really is no long term hope.