The Perma-Bear Cult

My friend Doug Kass wrote Wednesday on the perma-bear cult in financial markets. As I said to Doug , he is spot on, although I would add that the cult also has an entertaining penchant for purging from its ranks people who break bearish faith. Woe betide a former perma-bear deemed "less bearish"!

The perma-bear cult, of which I have often been accused of being a member, is an especially strange clique that often sees the clandestine plunge protection teams saving the U.S. stock market at critical points. They have never met a government statistic they like but instead see the U.S. government as "massaging" and revising employment, inflation and many other economic statistics in order to paint a positive picture. They express contempt for second derivative economic improvement and never or rarely ever see prosperity. They view seeds of recovery as Superman saw Kryptonite and extrapolate economic/stock market weakness to the extreme.

And they never ever or rarely make money.

Comments

[PCScipio]

"And they never ever or rarely make money." Not true, but it's tough when the deck is frequently stacked against you.

2009 May 27 11:48 AM

[Graham and Dodd Investor]

I, a fellow member of Paul's thestreet.com site, am a "permabear" and am up 9% this year. This, with no more than 50% invested. Imagine what I could have done fully investmed.

The secret: I'm not content to buy things at their "bottom." Rock bottom is more like it. Crox at 1 and change, Citigroup below 3, Alcoa, around 7, Ashland Chemical below 8, Target in the high 20s.

I was buying hand over fist around March 10,2009 (and seldom at other times), and have sold about half of my purchases.

2009 May 27 11:55 AM

[Jasper M]

On May 27 11:55 AM Graham and Dodd Investor wrote:

> I was buying hand over fist around March 10,2009 (and seldom at other times), and have sold about half of my purchases.

Then, arguably, you are Not "of the body" of perma-bears . . . and Though Art CAST OUT!

I'm bearish, a lot, been that way for . . . gosh, seems like decades. And I made 30% on my risk capital last year.
In defense of the ursine, we note that screwy economics seem certain to fail, badly, eventually. Seems we are getting proved right.

2009 May 27 12:11 PM

[Paul S.]

Right on the heels of the WSJ naming the best analysts from last year, the top of which consisted of all bears. Seems like the author and Doug Kass don't like to read.

"The winning analysts made sell recommendations far more often than those analysts who qualified for the rankings but didn’t finish in the top five, according to FactSet’s analysis of qualifying analysts’ active recommendations (buy or sell calls), says Phil Snow, a vice president at FactSet who was involved in the project."

online.wsj.com/article...

2009 May 27 12:27 PM

[dcb]

me too, how about the returns I got last may by getting out of the market and buying eev and dug.

As for the manipulation I didn't see that much of it directly until Jan of this year at the highs. all of a sudden on the run down into march you could see the change. it was very clear on the run up. now with the low liquidity in the market I see it. not as much as on the run up anymore when it happened at every dip.

Supplemental Liquidity or Herd Mentality? this article on todays SA adds further evidence.

Look at the volumes spikes on the S&P each day the regular nature. if this crap is random how come I can on a regular basis tell when the computer is doing it's save.

Ignoring something doesn't mean it doesn't exist.

I will add for those of us who would actually like to see a market less manipulated. The market gets manipulated downwards by the way too. You think that run Jan to March wasn't manipulated by goldman desk. straight down, day after day, same pattern same buying and selling pattterns every day. Lastly the godlamn prop desk trading activity spikes to huge levels. Don't be such an ass.

2009 May 27 12:38 PM

[Dave Wrixon]

I am not a perma-bear.

As soon as the USA gets it debt in balance with its tax base and it is demonstrating the ability to attract any private capital investment let alone foreign investment, then I will be as bullish as the next man.

You can call me Rip-Van-Winkle.

2009 May 27 01:02 PM

[dcb]

funny business started about 13:00 today. S&P trending down. no buying or selling spikes. money flow increasing. this is one of the "signs"

2009 May 27 01:13 PM

[dcb]

Look at the S&P 880 line on a chart. it looks like it is cut in stone, yeah that's normal (right)

2009 May 27 01:29 PM

[Fighting Yoda]

Lots of people have turned perma bears as they have lost faith in the system. The leaders have been found to be incompetent and greedy. It is a casino, a rigged casino- banksters are in charge. We are firmly back into the robber baron era, now even the Govt. is on their side – with all the bailouts and handouts. Wall Street is nothing but a Den of Thieves, out to loot investors- they will say and do anything to lure you in.
Can anyone explain why we were in the verge of meltdown a couple of months ago and now we again have total euphoria.
To all bulls and 'green shoot' protagonists if recovery were true:

- Why would Fed downgrade the economy last week.

- Why are S&P earnings forecasts coming down over last 3 months:
03/22 – $49.09; 04/20 –$ 44.40; 05/20 – $42.93 for a PE 21
2010 est - $46 – only 7% growth over 2009 est , for a of PE 19.3 – a fantastic forward PE especially for a strong bear market
(top down operating earning earnings consensus forecasts as compiled and published by S&P)

- Why do we still have 500K+ job losses a month

- Why are home prices falling 2%+ per month.

All this points to ongoing disaster not recovery, being a perma bear – would be a better strategy. Stay in cash – inflation is still very low.

2009 May 27 01:48 PM

[inthemoney]

It is not about being perma-bear , it is about being right. Bull or bear , who cares, as long as I got some change in my pocket.
As far as I can see all the current bulls are either delusional or willfuly ignoring the reality. They must be on bull-drugs.

2009 May 27 02:31 PM

[Alex Filonov]

Funny definition of perma-bear: he is bearish even if Dow Jones hits 0.

Seriously, perma-bears are even worse than perma-bulls. Bulls at least have one thing on their side: economy is going up in the long run. Of course, if you want to make money, you need to throw all preconceptions out and watch the market. And you can change your opinion on the spot if market tells you so.

2009 May 27 02:39 PM

[thiazole]

Speaking of perma-bears, did anyone else notice that Roubini is now saying the recession will end THIS YEAR??? Now, don't get me wrong, he is saying it in the most bearish way possible, but still... that should shake up some of the perma-bear Roubini fan-boys out there.

tinyurl.com/pelltm

2009 May 27 03:28 PM

[thiazole]

I was hoping to find you - see my above post. Now two of your bear heroes have fallen (the other is Krugman). More will come...


On May 27 01:02 PM Dave Wrixon wrote:

> I am not a perma-bear.
>
> As soon as the USA gets it debt in balance with its tax base and
> it is demonstrating the ability to attract any private capital investment
> let alone foreign investment, then I will be as bullish as the next
> man.
>
> You can call me Rip-Van-Winkle.

2009 May 27 03:31 PM

[user396040]

Most measures of the stock market are in nominal dollars and we have had inflation since 1940. This, and the fact that we have had both an increasing population and a slow increase in per capita real GDP, create a situation in which perma bulls have a substantial advantage(over the long term) in comparison with perma bears. If you correct market prices at various times for inflation, it becomes a much closer matter (prices have gone up roughly tenfold since 1940). The perma bears like Marc Faber who believe we are heading into hyperinflation should give us their projections of stock market valuations in both real and nominal dollars. The general public thinks that it has made a profit on a stock if the stock "goes up" in nominal dollars; if all or most of that profit is due to inflation, the profit is illusory.

2009 May 27 03:36 PM

[Larry House]

Paul, Doug made the observation in his piece about purging the ranks. Why is that something you would add? Are you trying to take credit which is not due you?

2009 May 27 03:49 PM

[Larry House]

In fact, Paul, on a closer look, your last sentence is lifted directly from Doug's piece but without quotation marks or giving him credit. Shame on you.

2009 May 27 03:52 PM

[Roger Knights]

Grrr!

2009 May 27 03:56 PM

[Missing_Link]

Mr. Kedrosky, it's difficult for me to comprehend exactly why you posted your little article. What is the point of wasting readers' time with this pointless bilge, utterly devoid of facts, that seems only to be a thinly-concealed (and failed) attempt at mockery?

After my "perma-bull" financial advisors lost me money every year for 10 years -- and much, much more in the last two -- I finally took matters into my own hands. I'm now making far more in a week than those "financial professionals" made me in their best month ... all because I'm finally willing to lend credence to the bearish arguments amidst the largest economic meltdown since I was born.

Thanks to FXI (the China ETF) and commidities, I also did great during the March-May rally.

It's a bit odd for me how acknowledging bad news earns people the label of "perma-bear." It seems to me that waiting for a hint of good news before turning bullish on US equities is only common sense. I'm still waiting for that good news.

2009 May 27 05:37 PM

[Missing_Link]

On May 27 02:39 PM Alex Filonov wrote:

> Of course, if you want to make money, you need to throw all
> preconceptions out and watch the market. And you can change your
> opinion on the spot if market tells you so.


Right, of course ... The market is always right, the market predicts the future, look at the shiny crystal ball, yada yada yada.

That's exactly the same nonsense people spouted during the dot-com bubble to justify the insane valuations of shell companies with no revenues or business models in 2001.

If I'd listened to stupid arguments like that, I'd have lost my shirt like all my friends did when the dot-com bubble crashed. As it happened, I gave a damn about fundamentals, and that saved me. I intend to keep giving a damn.

2009 May 27 05:42 PM

[thiazole]

If we had total euphoria, the S&P would be back to its previous highs or even higher. Instead it is down well over 40%. That is pretty bad. That is about how far it went down at the BOTTOM during the 1974 recession, which was a very nasty recession - the fact that the market is up so much from the bottom and has just now reached that level says a LOT about how bad this recession is. It isn't that we are all euphoric, it is that you expect the market to continue the over reaction that we saw in March and anyone who doesn't support the idea that the market needs to enter another negative over reaction cycle is somehow "euphoric". Remember, the day the recession ends is also day the GDP hits BOTTOM. Anyone who thinks the recession will end in the 3rd quarter is saying the economy will continue to get WORSE for several more months. We just realize that the stock market turns 6-9 months BEFORE the economy, so the March bottom makes perfect sense.


On May 27 01:48 PM Fighting Yoda wrote:

> Can anyone explain why we were in the verge of meltdown a couple
> of months ago and now we again have total euphoria.

2009 May 27 05:46 PM