10 Contrarian Reasons for a Bottom 29 comments
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A couple of weeks ago I wrote about seeing constructive long-term sentiment readings. To expand on that post, I offer 10 contrarian reasons to be long-term bullish on the stock market. The first three I already mentioned from my previous post:
10. The buy-and-hold discipline is dead and market timing lives. Financial planners tell their clients to build an asset allocation plan and to stick with it - but there are numerous signs that individual investors are abandoning their buy-and-hold discipline. Barry Ritholtz pointed out that AAII data shows that individual investor stock allocations are at levels consistent with previous bear market lows. CNBC recently aired a segment on the Death of buy and hold as an investing discipline.
On the other hand, Mebane Faber's market timing system is shooting the lights out compared to a buy-and-hold strategy, with returns at all-time highs comparable to 1974 bear market low levels. These results are not surprising given the terrible environment for equities.
9. Stock prices are just plain beaten up. Bloomberg reports that “[t]he worst annual decline in the Standard & Poor's 500 Index since 1931 has dragged down every industry in the benchmark gauge and 96 percent of its stocks.” Bespoke recently reported that the spread of stocks from their 200 day moving average is consistent with levels not seen since the Great Depression.
8. Speculation is dead. Trading volume on pink sheet stocks, the most speculative in the US market, are now moribund (see this Minyanville article).
7. NBER declares that the recession is here. As NBER will themselves admit, they would rather be right than timely. As experienced investors know, a good time to buy equities occurs when NBER declares a recession because the market is forward looking and economic indicators are backward looking.
6. Mr. Market has gone through most of the stages of “grief”. Gillian Tett of the FT (see this worthwhile but rather long webcast) says that the market is finally near the “acceptance” stage of grief.
5. VIX and More reports that the TRIN Index is flashing a buy signal. While this contrarian indicator doesn’t pinpoint the exact bottom, it is an indication that sentiment is washed out.
4. A Chinese SWF refuses to invest in foreign financials. This is another sign that we are in the capitulation phase of the market. Does this sound like the head of a multi-billion dollar sovereign wealth fund or a shellshocked individual investor [emphasis mine]:
Lou Jiwei, chairman of China Investment, said the sovereign-wealth fund will not pour any money into foreign financial firms after losing billions on investments in Morgan Stanley and Blackstone Group. "I don't dare to invest in financial institutions now," Lou said. "The policies of the developed nations on these institutions are not clear. Until they are clear, I don't dare to invest in them. What if they go bust? I will lose everything."
3. The market doesn’t go down on bad news. Given the awful employment numbers out on Friday, don’t you find it surprising that the market opened up down but finished up on the day?
2. Nassim Taleb tries to out-bear Roubini. In this recent interview with Charlie Rose, Taleb states that “I think it’s worse than Roubini thinks.”
Drum roll please...
And the number 1 reason:
1. Nouriel Roubini is partying like a rock star and seems to have groupies.
'Nuff said.
A Santa Claus rally, setback and then the bottom
My inner investor tells me that I should be dollar-cost averaging into this market at these levels. While there may be some downside risk, equity prices should be quite a bit higher in a 3-5 year time frame.
My inner trader tells me that with the positive market action on Friday in the face of the disappointing employment release, we are poised for the Santa Claus rally. Near term resistance on the S&P 500 is in the 900-920 area, with next resistance at about the 1,000 level. My expectation is that the market would then retreat and test the November lows before launching a new bull phase.
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This article has 29 comments:
When oil was at 147, there was a guru who saw it going to 250, where is he now?
I say no, It's a temporary technical bottom.
8000 and 9000 are big technical numbers.
The closer we get to 9000, the more you want to be in a short position.
This is not your fathers recession. This is the beginning of a new era and things will not be "as they were" 3 months from now.
The government is doing everything it can to re-inflate the housing balloon. But the hole is too big and all efforts will fail.
Deficits will explode
The economy will contract and then become stagnant.
Unemployment will be at least 9% and then some type of bottom may be in.
But the era of the "borrow and spend" economy as it was is over.
Longer term the US dollar will go down as the fundamentals are poor, however stocks of global companies should hold their value.
So what if the stock market is at about normal levels when viewed from the turn of last century and a typical bottom is less than 1/2 of the current value.
You are predicting that the market will rally based on tea leaves and some typical historic factors that do not apply in a once in a century event. Based on what economic fundamentals? If this stock market rallies to 10k I will jump in all the way on the short side since I like to bet against stupidity.
Needless to say I strongly disagree.
And that figure, incidentally, doesn’t include the additional losses from secondary-prime mortgage loans, auto loans, credit card balances, student loans and the other credit-related flotsam and jetsam floating around in the debt markets.
We're not out of the woods yet, not by a long shot...
www.contrarianprofits....
Remember the so-called bottom of the Fall of 2001 as a case example of Wall Street getting tried of selling/shorting in deeply oversold daily/weekly charts and covering their shorts and going long sucking in the regular investors, and then crushing them later in 2002.
A lot of mutual funds and hedgies are down 30-50% in 2008 so they need this rally to just to stay alive in 2009. Those talking heads on CNBC and especially on CNBC Fast Money show, are DOWN this year and have been praying for a rally. Cramer has been a crying pig these days with his daily commentary going back and forth in a manic fashion.
I'M BUYING AND HOLDING THIS TIME.
It is interesting that the way the DOW is constructed is price sensitive; a change in the value of XOM is far more potent than a greater move in % in BAC. Energy is the last man standing sector wise but energy's base is getting whacked due to weak demand. Margins are built on top of commodity prices (if it costs me x dollars, I charge 125% x sale price; a decline in x means a decline the 25% that is my profit margin) and with energy prices tumbling so far so fast - watch out the Q4 on energy. THAT will lead us to the bottom imo.
Wall St. bought into the lows of 2001 b/c thats when tech bottomed for the most part - 02 was when the effects finally spread out into the broader market. Same thing; financials ahve been nuked, and as the former heavyweights in the various indexes their demise has caused a great deal of the collapse in index valuations. Now the broade rmarket is starting to feel the impact.
I see Q4/Q1-09 earnings being the bottom as investors across the board get a taste and run for cover, one of these two seasons. Just my $0.02
i'm 70% sure thats a photoshop
Another contrarian reason to begin nibbling on top quality stocks at this point is that, no less than 120 days ago perhaps 90% of the people who write on this blog believed that oil was going to 200.
If you even implied differently you could get strung up.
Now that stocks have gone down, the same folks believe with every ounce of their new bear minds that they're going to keep going down and will stay down until Dooms Day.
Companies with great balance sheets and great products and great management will come booming out on top of the current mess.
Forget about bottoms and such nonsense; if you have the money available to invest, put it to work and forget about the ups and downs and one-day news events that the 24-hour financial media pump up as important.
By this time you can rest asssured that most every bit of bad news is priced into stocks. And yes, there will be some surprises, and traders will jump and hop and holler and scream; but a day or two later a new boondoggle will be riding the horizon as hard or harder than the last one. And on and on and she goes.
But the management of good companies with plenty of cash and little to no debt will march right ahead building their product lines, cutting out the deadwood, building out when things are cheap — in full anticipation of the boom to come.
Nokia (NOK), Cisco (CSCO), CF Industries (CF), France Telecom (FTE), Huaneng Power (HNG), Pfizer (PFE), Statiolhydro (STO), Taiwan Semi (TSM), Frontline LTD (FRO), & United Tech (UTX) are just a few of the reasonably priced great companies that will come out of this downturn in better shape than their competitors.
I own these.
On Dec 09 09:25 AM pockyclips 2020 wrote:
> Try to catch that falling knife by the handle. Other than oil, I'm
> holding out for end of year mutual fund and capital loses before
> jumping back in.
Alas, the falling knife cliché has “lived long and prospered” for several generations! In attempting to update this time honored postulate, an opposing thought deserves analysis in context of extreme volatility in the modern era.
It appears far less difficult to catch a falling knife than chase a launched rocket!
Fun article Mr. Cam and your work is appreciated.
The news that is already priced into stocks is that we might be heading for an Argentine / Icelandic currency and government debt meltdown. The big banks have become government-funded non-lending zombie entities, just like in Japan during the 90's. Money supply is fluctuating so widely, that the chances of a soft landing at a low rate of inflation is getting smaller every day. The consumer savings rate is still zero. Meanwhile, check out a chart of government debt over the past 10 years and tell me if there isn't an unsustainable trend that is about to end.
The author theory has a good chance to happen and I agree with it, even 1.000 on S&P 500 is kind of high target...
We'll test the low again.
On Dec 08 11:12 AM mr clark wrote:
> the rally is almost over guys, 1 more day or so...
On Dec 08 12:10 PM stox2buy wrote:
> I'M ALL IN, NOVEMBER 20, 2008 WAS THE BOTTOM AND I JUST DOUBLED MY
> POSITION ON EVERY STOCK IN MY PORTFOLIO THE NEXT 3 DAYS.
>
> I'M BUYING AND HOLDING THIS TIME.