Honey badger don’t care
Everyone has their own spirit animal. The United States has the bald eagle, Seattle the seahawks, San Jose the sharks, our hometown the University of Missouri has the tigers. Nothing is more warrior-like than identifying with a fierce predator. Humans have been mimicking animals since dwelling in caves.
Even in financial markets commentators often refer to “animal spirits” as the cause behind market fluctuations.
With animal spirits in mind, we thought it might be appropriate to assign the markets their own mascot. We’ve selected the S&P 500 as our market of choice and decided the honey badger should be its mascot.
Now let us tell you why.
The honey badger holds the title of “World’s Most Fearless Creature” by the Guinness Book of World Records. They will fight almost any animal and most of the time win. They eat cobras. Yes, you read that right. Cobras. They are clever and sneaky which is appropriate since they are from the same family as weasels. Most importantly they just don’t give a shit about anything. You can’t phase a honey badger.
The S&P 500 sounds like a honey badger to us. Slow down in global trade…don’t care. Massive government deficits…don’t care. Coronavirus…don’t care.
The S&P 500 doesn’t care about the broader U.S economy either which is better reflected in the Russell 2000 index. In the chart below you can see the Russell 2000 (yellow line) is failing to keep up with the S&P 500 (white line).
As team S&P 500 scores new all-time highs it’s tempting to cheer them on dressed as a honey badger and waving a dead cobra in your hand. Settle down. You’re drunk on cobra blood.
Ever look at the Venezuelan stock market priced in its local currency? Looks impressive. Would you want to buy shares on their local market with their local currency? Not a chance.
If it seems like our firm is steady beating the same drum about market risk and asset mispricings it’s because we are! There are many ways to take advantage of such distortions but they are for nerds like us that do global macro. The majority of folks out there with traditional portfolios are ill-equipped for current conditions.
Furthermore, retail and professional investors alike are dangerously complacent right now, simply feeling good about their investments at the exact time that they should be the most nervous. Maybe instead of being a fierce predator, it’s better to be like a gazelle and ready to flee at the first sign of danger.