Prechter's Same Old Story 8 comments
an article to
-
Font Size:
-
Print
- TweetThis
As you might have guessed by now, we are voracious readers here at Smead Capital Management. We saw Robert Prechter of Elliott Wave Theory fame interviewed on Bloomberg and then read the transcript of his interview. He has been pretty negative for the 29 years I have been in the investment business. He gained his notoriety for predicting the 1987 Crash and the 2007-2009 Meltdown that bottomed in March of this year. What the interviewers never share with you is that he stayed bearish from 1987 to 2007, but as open-minded absorbers of financial market information, we read the pessimists also.
He, as you might have already guessed, is bearish on the U.S. stock market. His two main reasons are what we would like to talk about. First, he said that too many stocks were making 52-week highs on the New York Stock Exchange and, to him, that is dangerous. Secondly, he mentioned that traders had swung from 2% bullish in March to 92% bullish in October.
It is easy to refute his first point. The market went down so much between September 18th and October 10th last year that it is highly likely that you will get a large number of new 52-week highs in stocks. Therefore, trying to call this an excessive amount of enthusiasm is like telling a University of Washington football fan that beating USC is all we should expect from our new Coach, Steve Sarkisian. What has happened up to this point in the Greatest Bull Market that Nobody Loved is a good start.
We are also not afraid of his second point. Traders are very short-term in nature and we think are dominated by what we call, Closet Bears. The Closet Bears are invested in U.S. stocks through long positions in oil and basic materials. They believe in a worldwide pickup in the economy led by China and India and want to own only those investments which benefit from a weak dollar. They believe that U.S. economic dominance is over and if you are going to be long in the U.S. stock market it better be with one foot out the door and have inflation protection attached. Mr. Prechter argues for a major bottom in the U.S. dollar, which could kill the oil and materials play. Lastly, the traders like the volatility of the popular large cap cyclical stocks.
Prechter’s advice could be a blessing to all those BRIC traders out there long oil and basic materials. However, other market participants like individual investors, endowments and pension plans are dramatically under-invested in U.S. large cap stocks (after years of diversifying away from the asset class). The American Association of Individual Investors shows that last week their naturally optimistic members are more bearish than bullish (41% Bears to 35% Bulls). During the week that ended on September 23rd, investors poured in $12.9 billion in bond mutual funds and liquidated $2 billion in U.S. equity funds. This market rally continues despite the fact that investors have continued to sell their stocks.
Our conclusion is what it almost always is: Be fearful when others are greedy and greedy when others are fearful. Investors are greedy by asking bonds and the BRIC trade to continue to be a good place to invest and are fearful of buying large cap U.S. stocks that don’t benefit from the BRIC trade. We like our portfolio and appreciate Robert Prechter’s concern, regardless of how consistently bearish he has been.
“It's the same old story. Same old song and dance, my friend.”
Disclosure: No positions mentioned
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication in the last week
Seeking Alpha 100 » -
Fastest Climbers
Those with the largestSee all
increase in followers
in the last week
Fastest Climbers » -
Top Commenters
Top commenters,
as ranked by their peers-
1
User 353732
-
2
Moon Kil Woong
-
3
doubleguns
-
4
optionsgirl
-
5
Mayascribe
Top Commenters » -
1
-
Top Instabloggers
The 100 most activeSee all
Instabloggers.
Top Instabloggers » -
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
The technicals the author cites are Only negative in context. In the middle of a larger bull trend, they would not be especially worrisome. In the aftermath of the sort of downside kick-off we saw in the last two years (especially given the fundamental background of the collapse of a historically near unprecedented credit inflation), they are warning signs, two of many.
Are you are implying that your explanations for the numbers of companies at 52 week highs and the huge turn in the bullish/bearish indicators are the basis for a continuing bull market ? I'll take the other side of that trade.
I've been following Prechter's work for many yaers and have profited immensely from it. But no one is right all the time ... thats what makes markets.
> Prechter also called the intermediate bottom in 2009. <
And the bottom in 2003.
>What the interviewers never share with you is that he stayed bearish from 1987 to 2007, but as open-minded absorbers of financial market information, we read the pessimists also.<
They never share that with you because it's not true! Did that cross your mind? I didn't think so.
Anyone who states that Bob Prechter stayed bearish from 1987 to 2007 is either knowingly flat out lying, has an agenda of his own that needs attention, or simply doesn't know his facts. In any case, he shouldn't be misleading his readers with such disingenuous garbage. He probably shouldn't be writing at all.
It's about as honest as writing something like "Back in year 2000 when the Dow peaked at 21,600, General Motors purchased J.P.Morgan Bank for the second time. Remember that folks? Well since that time......."
When I read something that is so blatantly false as this declaration that essentially says "Bob Prechter is a perma-bear, always has been and always will be", and when that statement is quickly proven to be false simply by reading any number of Bob Prechter's calls in the past, then how can I or any other reader who recognizes such blatant inaccuracies take this reader seriously in anything else he says? We can't. At least I can't.