Before I publish my market outlook for 2018 in the days ahead I thought it might be useful to recap some lessons learned from 2017. While I want to focus on technical considerations some larger market context first is equally important.

The biggest mistake bears always make, myself included, is underestimate the sheer recklessness of bulls. They keep raising the bar higher and higher, get everyone positioned long and when the construct ultimately fails they beg for bailouts and artificial liquidity comes in to save an industry that is 100% reliant on convincing retail to put money into the system. This may seem a harsh assessment, but this has been the script for the last 30 years as we’ve transitioned from one market bubble to the next.

Bubbles are notorious for getting people sucked into believing things that are absolutely unrealistic. Multiples get expanded to high heaven on projections that never pan out. Every. single. time.

In this context it’s actually quite easy to be a bull. Keep raising targets, always be optimistic, and when something breaks shrug your shoulders and say: Hey what are you gonna do? Stuff happens, but the Fed will bail us out. And the cycle begins anew.

It’s a dangerous game for investors as Wall Street will look right for years and complacency breeds more complacency as bearish voices are ignored as they look wrong precisely at the time when they are the most right.

Take 1999. Bears were completely wrong, but also entirely correct. The bubble run-up was pure fantasy, but it kept going and going until the rug got pulled:

Similarly in 2007 nobody gave you warnings, and Wall Street kept pushing price targets higher for 2008:

And people got hurt big time every time.

The then predictable response: We need bailouts, must get rid of mark to market and the Fed obliged with QE 1, 2, 3 and global central banks joined the foray. And this has been the running game for over 8 years now:

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