Five Reasons to Be Bullish 20 comments
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The market is said to have its own personality. It teaches investors lessons when they get arrogant and provides them with hope when things seem like they couldn’t get worse. This personality is affectionately called Mr. Market.
Mr. Market’s moods are currently being affected by a very interesting interplay of dynamics brought to fore by the various governments’ interventionist policies attempting to shore up the poor economy. Which dynamics will eventually lead the market forward is anyone’s guess, but I attempt to present here the major factors at play, without putting forward too much analysis and leaving the final assessment to the reader.
In this first edition, I cover the top 5 reasons which are held up by market participants as justifications for being long and bullish of the market.
Top 5 reasons to be BULLISH
“I’ve still got my house and my company is now hiring!”
Employment, sentiment and home prices are some of the most important indicators of economic health these days. Many of these “economic fundamentals” seem to have turned their respective corners. Employment, seen as the most important (but lagging) indicator, peaked in March with weekly jobless claims touching roughly 670,000 and the most recent numbers hover around 550,000. Consumer sentiment, a direct indicator of the optimism/pessimism that consumers have about conditions, also bottomed in Feb-March at around 25, while the latest reading came in at 70.2 (above the all important 50 mark). Even the much maligned housing market seems to improving, with the Case-Shiller home price index improving for the first time in months to 132.64 in Q2, 09 (while still being down 14.9% year-on-year).
“Just look at those Asians”
The closest thing to a strong recovery has been visible clearly only in the Asian economies. In Q2, 09, India’s GDP expanded 6.1% year-on-year, while China’s expanded 7.9%. Amongst the Asian tigers, Hong Kong’s GDP grew at an annualized rate of 13.9% in Q2 from the previous quarter; South Korea grew 9.7% by the same metrics; and Singapore grew … wait for it … a whopping 20.7% annualized. As a point of reference, Singapore’s GDP was down 14.6% in Q1 sequentially and annualized, Hong Kong was down 16.1%. Talk about a V-shaped recovery! The regional stock markets in Shanghai, Mumbai, Hong Kong and Singapore have followed a similar trajectory. If Asia is where all the potential for future demand is, then this is a pretty good sign.
“What goes down…”
… Must come up; But hardly anyone was astute enough to buy into the market when the March 9th lows were made. As a result, all those people missed the early part of a huge rally. Even after the market had rallied 30%, investors were confused about the solidity of the trend and debates raged about “bear market rallies”. Since then, most investors have already bought into the market at some point or are waiting the next dip to buy in. Due to this, the market has seen every marginal correction being bought into by money on the sidelines jumping in, causing an upsurge as is obvious in the chart below. This was very obvious in July, just prior to the Q2 results. This mentality has lead to the “higher highs and higher lows” observed in all the major indices since March, creating the strong uptrend. The argument holds that the uninvested capital on the sidelines will continue propping up the market on dips.
“Q2 blew away expectations”
73% of companies that reported Q2 results beat analyst expectations ahead of their announcements. Results were not as bad as the investors expected them to be. But does that say more about the results or the expectations? It’s an open question, but Mr. Market liked what it saw, as companies were able to beat targets on their bottom lines. The initial March rally was sparked by positive Q1 results while the subsequent Q2 results in July helped bring the major indices up another 17%.
“I’m still buying Japanese”
Global trade is seen as the life blood of the modern global economy and that life blood was drained in the last months of 2008 as the financial world came crashing down. That is why many of the export-oriented Asian economies had such a hard landing. However, those numbers are now looking up. In July, US exports were up 25% annually after reaching a low in April, while the US imports (driving Asian exports) were also up 29%. Another major indicator of health of global trade is the Baltic Dry Index (BDI) which tracks international shipping prices for dry bulk cargoes, such as raw materials. The BDI is one of the purest leading economic indicators because it provides indications of the demand to move materials of production and also because the BDI does involve any speculative players. While off its recent highs, the BDI has also risen to 2,431 from its December lows in the 600 range.
Disclosure: Long the market
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"I've still got my house?" I just sold my house at a freakin loss. Had to do it. The housing market is junk and the CRE is tanking now if you haven't noticed. Drive around and look at the countless numbers of strip malls abandoned.
This article sucks.
The market was bullish for several valid reasons, and none of them are the top 5 reasons you just mentioned above.
On Sep 29 12:33 PM User 344476 wrote:
> I'll take exception to the adage "What goes down must come up." I
> remember a similar, but different, adage "What goes up must come
> down." I read another article this morning on SA that referred to
> economic conditions at the end of the Roman empire that seem to be
> very similar to our current situation. The Roman empire went down
> and did not come back up.
The soundness of a nations money supply is in direct proportion to the soundness of a nations government.. as if anyone doesn't already know that.
Appreciate your feedback, visit my blog for more analysis!: youngandinvested.com
I wonder if SA contributors could be categorized on their profiles as bullish or bearish, on the option of the contributor of course. The total numbers in each camp resulting from that could provide for interesting reading and analysis!
On Sep 30 09:53 AM David Van Knapp wrote:
> Yes, SA permits bullish articles and upbeat comments. I've had several
> published, including four articles about the 6-month rally (while
> it was happening, not in retrospect). If you (correctly) think that
> the overall tone of SA is negative and bearish, that is just a reflection
> of its contributors, including the many commenters who do not write
> articles. PS: That overall tone may be a contra-indicator.
And then we have the people who write the investment rags, always winners no matter what, so join in with them for a fee so you too can enjoy the 5,761.31 percent increase in the last two weeks 'cuz they have not recommended a single loser. I wonder why all of us just don't get them to come together and show the rest of us just how this is done.
The bottom line right now is the case for market volatility and the enormous effect the stimulus has had on the markets if for no other reason than a "don't fight the Fed" mentality; well it works doesn't it?
But now, alas, and alack, the green shoots are withering and the enormous capital dislocation is going to have to boomerang, just how is a little nagging as I had believed that the emperors lack of clothing would have become more obvious than it has. But then people like to be fooled, like to believe, like to be punished too.
The struggle between inflation/deflation goes on; things are still dicey; however, there is always money to be made. Diving rod anyone? I think I am going to start my own new company; divining rods for the markets. Kind of like the "pet rock" thing.
Check out Tyler Durden's look at international shipping over on Zero Hedge:
Thousands Of Rusting Ship Hulls Are A Fitting Tribute To The Speculative Market Bubble
www.zerohedge.com/arti...
But of course in absolute terms, trade volumes are still way below where they used to be, hence all the ships parked off the coast of Singapore, Gibraltar and the like.
For more analysis, check out my blog: youngandinvested.com
On Oct 01 03:19 PM JeffDB wrote:
> "Global trade is seen as the life blood of the modern global economy
> and that life blood was drained in the last months of 2008 as the
> financial world came crashing down. ... However, those numbers are
> now looking up. ... Another major indicator of health of global trade
> is the Baltic Dry Index (seekingalpha.com/symbo...) which
> tracks international shipping prices for dry bulk cargoes, such as
> raw materials. The BDI is one of the purest leading economic indicators
> because it provides indications of the demand to move materials of
> production and also because the BDI does involve any speculative
> players. ..."
>
> Check out Tyler Durden's look at international shipping over on Zero
> Hedge:
>
> Thousands Of Rusting Ship Hulls Are A Fitting Tribute To The Speculative
> Market Bubble
>
> www.zerohedge.com/arti...
> ... However, the point I make in the article is that trade volumes have definitely come off relative to the lows that were reached back in January. Recent IMF releases have shown that global trade has been on the rise in the last few months
But of course in absolute terms, trade volumes are still way below where they used to be, ...>
Fair enough. But stock prices are what, some 50% to 60% above their lows? I doubt the shipping volumes have caught up with the jump in stock prices which preceded it. Of course, that brings up the question as to whether prices had fallen below their "fair value". But in any event, it seems to me that the question would be whether any increase in trade would be sufficient to justify projections of an increase in earnings which would in turn justify a further increase in prices above current levels.
An increase in trade, in and of itself, wouldn't be a bullish factor. If stock prices have already discounted significant future growth projections, it would take data that would indicate an even faster growth than is already projected for it to be bullish, it would seem to me.
> For more analysis, check out my blog: youngandinvested.com
I looked at this article on your site. There it was entitled, "Market Views on Mr. Market – Bullish Edition"
youngandinvested.com/f...-–-bullish-edition/
I believe the term "Mr. Market" was popularized by Benjamin Graham in his book, "The Intelligent Investor". I'm pretty sure he would not be all that bullish at the moment. His focus was on metrics such as P/E ratios, price/book value, dividend yield etc. I think the current prices for the market in general are quite a bit higher than what he would consider to be bullish.
On the other hand, he also took into account what other investment alternatives offered and I think he would have considered the current very low interest rates quite bullish for stocks, particularly as the debate rages as to the prospects for future inflation. Stocks don't necessarily thrive in an inflationary environment, but they usually do better than bonds. Near zero rates for cash and quality short term debt also encourages people to head toward riskier assets as well.
Real estate obviously carries risk as well given the large amount of inventory at the moment, the high debt load of the citizens, and the apparently large number of homeowners who are behind in their payments and others that are in foreclosure or have already been foreclosed upon but have not yet hit the market.
Precious metals and many international markets have already gone up a lot as well, so it seems like those are some bullish factors as well, by making some of the alternatives less attractive than they might otherwise be.
The bottom line for me is that I probably wouldn't consider a small bump in shipping from an almost catastrophic bottom to be all that bullish, particularly for a stock market that is already 50%+ above it's bottom.
I agree with your points. Again, the point of this article was to consolidate the arguments that are made by the bulls to justify the rally. I will be presenting very soon another article that provides the justifications that the bears have been providing for their views. So do look out for that and I'd definitely want to hear your thoughts on that as well.
I guess I'm more of a pessimist on the economy than an outright bear on stocks.
I believe Marc Faber is right in thinking that if they keep the printing presses going we could have a big run up in the prices of stocks, but that would be nominal prices as opposed to "real" value.
seekingalpha.com/artic...
I don't know if I'll have anything useful to add to the discussion in re: your post on the bears' side of the argument, but I'll certainly check it out.
China overcome severe problems from the missing American Consumer and was able to stay positive by dipping into the vault and spending a lot of money. When that ends they will still have to deal the falling export market.
Without a doubt, India is still very interconnected with the global economy, but it isn't as leveraged on global growth as China.
The new article with Bearish views is out! Take a read: seekingalpha.com/artic...