While we have generally disagreed with Morgan Stanley's Adam Parker flipflopping on stocks some two years ago, or just as the market was topping out, we can't find fault with his latest note released today in which he openly admits that "our portfolio advice has been pretty horrendous lately. As my 90-year old Latin teacher used to tell the class in 1985, "son, you are in left field, without a glove, with the sun in your eyes."

For those who follow our portfolio, we did quite well over the five years from 2011-2015. But, our portfolio just had its worst month in 61 months in January, and things have not improved in February. The market is down more than we thought it would be. Our biggest sector bet has been financials (particularly credit cards). As an investor recently said to us at a conference, "I am doing a lot of things, just nothing with confidence". Doing the opposite of what we recommended would have been better. Bizarro World. Or at least hopefully not the real world.

Why has said advice been horrendous? In three words, blame "bizarro world." Here's why:

Martin Marietta reported last week, and they and a couple of other materials companies have blamed their poor quarters on the rain. Even Milli Vanilli's success with this line turned out to be fake. The rain? Oh, the stock went up a lot that day. Bizarro World. The credit card companies are discounting a consumer recession. The banks are discounting an industrials recession. But, Visa said volumes were good in January, and jobs, housing, delinquencies, confidence, and other metrics appear to belie the market price action. Bizarro World. Companies with good results are being hammered. Companies with bad results have stopped going down, with freight, WMT, and other  prior losers outperforming. Bizarro World."

We truly find it amusing how increasingly more "serious people" allign with our cynical view of the "market", one in which nothing makes sense and merely reporting on day-to-day centrally-planned events, which have zero logical continuity or cause and effect, is grounds for constant entertainment.

What is Adam Parker's recommendation?

Are we on a cube-shaped planet? Should "Us do opposite of all Earthly things?" Everything seems backwards. Sell winners, buy losers, own staples in both up and down markets. Just do the opposite of what makes sense. Bizzaro World.

No Adam, not Bizarro world world, a world taken over by central planners. And yes, even the most rigged markets can go down as well as up. Enjoy.

And we hope our readers enjoy some of the excerpts from Parker's full note because it is truly an amusing admission of just how broken everything is.

Bizarro World

We think the biggest investment controversy is the health of the US consumer. The US economy has clearly deteriorated somewhat since the Fed lift-off. But we don't think a US recession and an EPS collapse are likely. So an important question is - will the key consumer metrics wobble? For those like us who still think a US recession isn't the base case, we are holding onto data points like housing, jobs, confidence, and the lack of a broad-based increase in delinquencies at credit card companies as signposts the US consumer isn't imminently collapsing. It has been obvious to us that bad news for the economy would be bad for stocks, and we worry a bit that there's an emerging consensus that the jobs data last week showed some over-reporting, with some experts therefore concluding a best guess for the February jobs report is 100k and not closer to 150-200k. This is a view through the windshield, not the rear-view mirror, and could make one leg of the "consumer is ok" stool wobble a bit. In our view, seeing how the consumer data trend is crucial for finding a floor in the market.

What are the other major client concerns?

China economy and currency devaluation: We are definitely concerned about the China economic slowdown and the tighter financial conditions that ensue from the currency depreciation. Morgan Stanley's house view is that the depreciation will continue (6% more this year and 11% more through year-end 2017), and it is hard to argue this won't continue to impact emerging markets and therefore demand for US exporters as these countries' currencies weaken. From the US equity perspective, we are generally avoiding stocks with exposure to the Old Economy - no metals and mining, no materials, less than the benchweight in industrials, underweight energy. In our judgment clarity on the trajectory of the Chinese economy and stabilization in major economic factors seem like prerequisites to get backlog growth and higher book-to-bill ratios for the exposed US companies in industrials and technology. Among the items we are concerned about, after a slowdown in the US consumer, next on the list is further Chinese economic deceleration or currency depreciation.

Fed impotence: Many investors have been suggesting that the Fed and frankly all monetary policy makers globally have run out of power. There are roughly 15 countries with negative yields out seven years on the curve. So, investors are asking about monetary policy efficacy, cuts not hikes, the zero bound, and QE4. Is 4 bigger than infinity? It is definitely true that the bubble is in the belief in the policy makers. Investors are worried that US economic conditions need to really deteriorate for the Fed to admit the hike was wrong, so markets will likely continue to go lower if economic news is bad, and another group of investors worry that if the Fed acts, it won't be  effective. We don't think lowering the front end to zero will be good for stocks. We do think a QE4 would be, or at least we won't fight it. Last week we received an article about negative CORPORATE bond yields from an investor. That being forwarded to us just about summarizes where people's heads are right now. In the end, Morgan Stanley's economic base case is still slow economic growth and slow retrenchment from the Fed, but our judgment is that bad economic news won't be rewarded. We are not as concerned that the Fed will make a mistake in terms of raising the front end, but it is Bizarro World.

Earnings season and outlook: We had thought the EPS season would assuage fears that formed and grew in early January. The disturbing development is the price action this year, where the rewards for beating estimates has been small, and the penalty for missing has been harsh. This is new from last quarter, where there were high rewards for beating and big penalties for missing – but of similar magnitude. (Remember the Thursday night in October of last year when Amazon, Google, and Microsoft all beat expectations and collectively added roughly $100 billion of market capitalization before the open the next morning?) The big reward for beating expectations hasn't continued this quarter. So, if beating isn't rewarded and missing is punished – isn't that also called a down market? EPS season in aggregate has been fine – 85% of the market cap has reported and there's been 4.1% upside to the embedded consensus numbers, about average for the last 27 quarters, all of which have shown upside for the US market. Forward guidance has come down sharply, possibly a negative harbinger but also making 2016 expectations really low relative to history and potentially too low in absolute  terms. The long-term average for the bottom-up estimates is for 14% growth at this time of year, and it is currently around 3% for this year. That seems pretty low to us. Earnings will end up about $118 in 2015, with $5 in energy. They were $119 with $13 in energy in 2014. The current consensus is $122 for 2016 with $2.30 in energy. So, there is a diminishing impact of the lower oil price. Moreover, earnings in 2015 grew around 6% ex-energy. Expectations don't seem that high to us right now for the full year 2016. We are at $125.9 – above the bottom-up number, a place we have never been before at this time of the year.