Something’s missing from Craig Callahan’s long-short fund. The shorts, namely.
“Morningstar kicked us out of their category,” said Callahan, who helps oversee $2 billion as president at Icon Advisers Inc. in Greenwood Village, Colorado, and hasn’t bet against a stock in two years. “We’re in a great bull market. This market is going higher. Why short now?”
Everyone’s got a bull case nowadays. Legendary short Marc Cohodes tells anyone who’ll listen to buy Overstock.com for its blockchain platform. Credit crisis savant Gary Shilling says deregulation is driving equities. Even Jeremy Grantham, venerated advocate of buying cheap, says it’ll be a long wait.
“Jim Grant put me in the title a few months ago under the heading of ‘The Apostasy of Jeremy Grantham,’ that I was forswearing my religion,” the 79-year-old chief investment strategist for GMO LLC in Boston said. “It’s an exaggeration, but it picks up the idea that I’ve temporarily broken ranks with the general tone of the value community.”
With the S&P 500 trading at 22.5 times earnings, Grantham has been moderating his tone for a while. “My view was, starting five years ago, that you shouldn’t expect a rapid market decline to a much lower level,” he says, while noting that too fast a climb could still end in tears. “You should brace yourselves for continued high prices, or even rising prices if the Fed didn’t change its policy.”
Maybe it’s the Fed, maybe it’s Donald Trump, maybe it’s bitcoin froth seeping into equities. But lately, daring, animal spirits and greed have supplanted fear as the bull market powers toward its ninth year. Bears that once roared at any sign of trouble now seldom make a peep. Too many dire predictions failed to come true.
It’s not just anecdotal. A recent survey by the National Association of Active Investment Managers found that even the most pessimistic mutual fund overseers are fully invested in stocks. Equity exposure rose to the highest level in data going back to 2006.
Numbers illustrate the conundrum for bears. Up 20 percent on the year and 46 percent from its 2016 low, the S&P 500 has gone 71 days without a 1 percent move in either direction, the longest stretch since 1995. Turbulence is nowhere: the Cboe Volatility Index has held below 10 about 20 percent of the time in 2017 as the S&P 500 hit a record once every four days.
