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Permabear David Rosenberg offers 17 reasons to be bullish - seriously! But it's short-term, and...

Permabear David Rosenberg offers 17 reasons to be bullish - seriously! But it's short-term, and the market is still a "meat grinder": "The bulls have the upper hand, but only until the next shoe drops in this modern-day depression..." Whew, that's more like it.
Comments (40)
  • Stone Fox Capital
    , contributor
    Comments (5790) | Send Message
     
    If the European debt crisis didn't crash the markets beyond a somewhat normal correction, then what would? Absent another shoe as David suggests, this market is some 30-40% undervalued.
    23 Jul 2010, 06:23 PM Reply Like
  • enigmaman
    , contributor
    Comments (2686) | Send Message
     
    undervalued based on what metrics? Expectations? do you really believe earning will surpass current estimates, a serious deviation to the upside from the LT mean, have you heard about reversion to the mean, expectations have been in serious divergence from PMI indexs how do you reconcile this
    23 Jul 2010, 06:45 PM Reply Like
  • Machiavelli999
    , contributor
    Comments (829) | Send Message
     
    "do you really believe earning will surpass current estimates?"

     

    They have been for the past 4 quarters.
    23 Jul 2010, 06:54 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9923) | Send Message
     
    It's undervalued because Stone Fox Capital is still holding INTC at $60 from back in 2000 and others like it, and he thinks he got a bargain on it back then, thus it is undervalued and should go back to those levels. He thinks bull markets start every day and continue on forever. He thinks analyst estimates actually mean something, other than the analyst called the company 2 days before reporting and then reduced their estimate to 1-cent below what the company told them.

     

    Fact? To SFC, a fact is whatever he proclaims it to be. No point in anybody else looking at macroeconomic data or past historical metrics ... SFC will tell you what the truth is. Isn't that what Bernie Madoff told all his clients also?
    23 Jul 2010, 07:07 PM Reply Like
  • Barry Crocker
    , contributor
    Comments (441) | Send Message
     
    Q3 estimates should be in concrete now ... with no revisions should a "dip" in the market occur. The bar was lowered significantly for Q2.
    23 Jul 2010, 07:30 PM Reply Like
  • Archman Investor
    , contributor
    Comments (2355) | Send Message
     
    If you want an example of what an MBA can buy and how those who work for Wall Street would manage money for clients (if they really had any) please view the following embarrassing link to Stone Fox' own horrific money management skills.

     

    Where he shows you, that just like 99.9% of all those educated in the typical Wall Street ways and work in some way related to Wall Street they only know how to make money in bull markets. They have no clue, none, how to manage money in bear markets and preserve a persons wealth. That is why he is always ultra bullish and his hero is Brian Wesbury. They pump and take as much money from unsuspecting people during bull markets, get paid a lot, only to lose 60% or more when the bad times come. A joke to say the least.

     

    www.marketocracy.com/c...
    23 Jul 2010, 07:31 PM Reply Like
  • Conventional Wisdumb
    , contributor
    Comments (1802) | Send Message
     
    On July 23rd, 1998:

     

    S&P 1139.75

     

    I am sure the average "perma-bull" thought the market was 30-40% undervalued back then as well.
    23 Jul 2010, 07:52 PM Reply Like
  • davidbdc
    , contributor
    Comments (3141) | Send Message
     
    Well I looked at the link but it appears to me that he's outperformed the S&P by 20% over the past two years??

     

    I don't have dog in this fight but unless I"m looking at something incorrectly since he set up his fund he's outperformed.
    23 Jul 2010, 08:46 PM Reply Like
  • Archman Investor
    , contributor
    Comments (2355) | Send Message
     
    Like I said: Any monkey throwing darts at a board can match or beat an index during a bull market. What you say works, as long as we are in a never ending bull market.

     

    I guess you didn't notice the first part of the chart where his so called "fund" went from $10 to under $5, a more than 60% loss during the 2008 to 2009 period.

     

    That's money management and preservation of a client's capital?

     

    Why do you think "legendary" investor Bill Miller is such a failure? Because he can only make money for people in bull markets. Even during the 2000-2003 market where the S&P lost 40% of its value, the corrupt media glorified Bill Miller for beating the index because he "only" lost 38% of his fund holders money.
    Again, that's money management?
    23 Jul 2010, 08:57 PM Reply Like
  • davidbdc
    , contributor
    Comments (3141) | Send Message
     
    Well I guess it depends on how you want your money managed and how much risk you can tolerate. We all have different goals and ideas in terms of our savings.

     

    At least he didn't do what many supposed guru's did - they held risky assets through 2008 and as 2009 dragged into late Feb/march they proclaimed that risky assets weren't appropriate and switched into more conservative assets just when risky assets turned around. So perhaps it was dumb luck or perhaps he's actually got a backbone. Since this seems to be some sort of ongoing thing I'll just leave it at that and wish you good luck with your own investments :)
    23 Jul 2010, 09:25 PM Reply Like
  • positivethoughts
    , contributor
    Comments (1812) | Send Message
     
    The reason why I don't think earnings will surpass current estimates is because the factors that caused the decent numbers - stimulus, employment benefits extensions, cost cutting on the part of businesses etc. will eventually fizzle out.
    23 Jul 2010, 07:03 PM Reply Like
  • Harry Tuttle
    , contributor
    Comments (2221) | Send Message
     
    If David Rosenberg is labeled "permabear," wouldn't it be fair to also label everyone else?

     

    Here are some suggestions:

     

    "perma-bull Abby Joseph Cohen continues to see 20% upside on the S&P as she has for most of her career."
    "unrepentant buy-and-hold at any price Jeremy Siegel predicts yet another rally"
    "never seen a recession until to late Ben Bernanke continues to predict healthy economy"
    "I think the US only needs about 5 banks Tim Geithner continues to expect banks to resume lending (any day now)"
    "push and dump self promoter Jim Cramer says buy XYZ despite its 3 digit p/e"
    23 Jul 2010, 07:20 PM Reply Like
  • Econdoc
    , contributor
    Comments (2944) | Send Message
     
    Welcome to the dark side Rosie. Although I wish you would have waited a few more months.

     

    E
    23 Jul 2010, 07:22 PM Reply Like
  • Machiavelli999
    , contributor
    Comments (829) | Send Message
     
    Yea seriously Econdoc. With perma-bear David Rosenberg going bullish, is that the sign the bottom is about to fall out of this market?
    23 Jul 2010, 07:50 PM Reply Like
  • Econdoc
    , contributor
    Comments (2944) | Send Message
     
    I have heard a few these guys lately. Long term bearish but short term bullish. The market is cheap in the vicinity of 1050 and there are bargains. I recently bought TUP and L during the last dip. Got some more JNK and added to a couple of others from the cash I raised last time we poked our heads up 1100. We will see if we can pull through thus time. With strong earnings, Europe more positive and the oil spill capped we may have a shot of busting outbid the range. Not that I care a whole lot. The longer we stay cheap the happier I am.
    23 Jul 2010, 08:46 PM Reply Like
  • Angel Martin
    , contributor
    Comments (1292) | Send Message
     
    Some of the doomers are starting to hedge a little bit.

     

    I thought Rosenberg would be the last bear to capitulate.

     

    Of course there is always Alan Abelson...
    23 Jul 2010, 09:05 PM Reply Like
  • Paul Nelson
    , contributor
    Comments (225) | Send Message
     
    Who cares what Rosie thinks-his record over the long term is nothing great-He is always a bear and his reasons for why the market will go up or down are just his opinions-Hardly makes him worth following!
    23 Jul 2010, 07:53 PM Reply Like
  • Conventional Wisdumb
    , contributor
    Comments (1802) | Send Message
     
    As usual only someone who hasn't read his material would make such an ill informed comment. This whole stupid concept of labeling is the problem in the first place. You don't have to read him if you don't want to but disparaging him when you don't is just wrong-headed and dangerous.

     

    If you had followed David's advice in 2007 when the market was at 1550 you would have been way ahead even if you had parked your money in the bank during the last 3 years.

     

    Anyway whoever wrote the blurb to open this conversation is guilty of the same stereotyping and lazy thinking.
    23 Jul 2010, 08:29 PM Reply Like
  • Tack
    , contributor
    Comments (12770) | Send Message
     
    Anyone who is looking away from the last two quarters of corporate data, that have accelerated significantly both in earnings and revenues, and is choosing, instead, to believe that this market is going to collapse, just because they "know it," or a pundit says so, or because the "charts" say so, does so at his/her own peril.

     

    There are lots of opinions and prognostications, but the data is always the best and most objective indicator of what's actually happening. The data has no opinion, and it certainly doesn't look bearish, presently, and no amount of negative commentary or table pounding can alter the datapoints.

     

    One can conjure up reasons why it should not be, or it's not "fair," or it's not "sustainable," but if and until there's some definitive sign of contraction --not a slowdown or pause in growth-- the bear side case looks especially weak. Today's reports from Europe only buttressed the positive data and bullish outlook that's been in evidence from U.S. corporations.
    23 Jul 2010, 08:28 PM Reply Like
  • Conventional Wisdumb
    , contributor
    Comments (1802) | Send Message
     
    You may in fact be correct. However, the data looked pretty good for most of 2007 when the S&P went on to make its high of over 1550 in Oct 07.

     

    The data doesn't have an opinion only the person who interprets it does. This is why the two people can look at the same information and form two diametrically opposed opinons on the FORWARD implications of that data.
    23 Jul 2010, 08:43 PM Reply Like
  • Harry Tuttle
    , contributor
    Comments (2221) | Send Message
     
    Correct. The facts are:

     

    1) Most investors have not made a dime in the stock market in more than a decade.
    2) Portfolio managers, asset gatherers and wall street pundits have consistently been among the top earners in the US during the SAME period.
    3) The economy TODAY does not look good.
    4) NOBODY knows the future. Neither the bears nor the bulls.
    23 Jul 2010, 09:00 PM Reply Like
  • nmelendez
    , contributor
    Comments (1622) | Send Message
     
    Trader's have...jejeje :)

     

    I wish to thank all those nice people who keep putting money into the market. I just love skimming off the top.... :)
    23 Jul 2010, 11:52 PM Reply Like
  • Econdoc
    , contributor
    Comments (2944) | Send Message
     
    So much bitterness. I am really sorry.

     

    A lot depends on your time horizon - if you are less than 50 you should not care what returns were over the past 10 years - in fact the worse the better - I am grateful that I had the opportunity to buy in 2002 to 2004 and again in 2009 through the present.

     

    It sounds like you need some easy to follow rules - that will help you to "time" the market - no guarantee that you will not lose but you will avoid buying at tops and selling at bottoms if you follow these...all of this is just my opinion... and you should devise your own parameters...you may stay out of harms way...

     

    When the forward S&P Earnings yield is less than 2.5% above the Ten Year - stocks are more expensive

     

    When the forward S&P Earnings Yield is 4.5% or more greater than the 10 Year - stocks are cheaper.

     

    Right now forward earnings for 2010 in the range $78 to $85 the gap is around 4.5 to 4.8%. Borderline for me as of today.

     

    If you don't like Earnings Yield - use S&P dividend yield vs. the 10 year.

     

    When the Dividend yield plus 1.3% is less than 2.5% - stocks are expensive.

     

    When the Dividend yield plus 1.3% is greater than 3.5% - stocks are cheap.

     

    Right now the magic number on S&P yield is 2.1 + 1.3 = 3.4%. This is the long run expected real return from investing today. Compare this to the 10 year at 2.9 your gap is about 0.5%. This is marginal for me - as of today. On this basis stocks are not super cheap but they are not expensive either.

     

    If you are conservative i.e. greater than 50 then you want both the Earnings yield and Dividend yield conditions to be true to invest in equities. If you are less than 50 you are ok if only one of them hold. Being less than 50 my rules allow me to invest here.

     

    I have used these rules since around the mid 90's and they have been helpful to me. I try to ignore economic news and much else - treating it as noise. This last thing is especially hard to do. Candidly I just don't care about the economy. I want things to be better but I try not to let it influence my investment choices. I try not to invest based on GDP growth or unemployment rate or consumer confidence etc. etc. they are not meaningful. That said...I am not anywhere close to perfect so I let a large chunk of my liquid net worth be managed by a third party, Which if you can find a good person can also give you a great leg up. Government is also irrelevant. Who is in charge seems to be a non issue. Stare at a chart of the S&P over the past 80 years and try to figure out Republican vs. Democrat. Makes no difference.

     

    I also firmly believe that your age is a more important determinant of your stance than anything else. Below 30 you should be super bullish. Hold nothing but stocks. Below 50 hold some bonds and a little cash - no matter what. Above 50 hold much more bonds and more cash no matter what.

     

    I hope this helps. Like I said these rules work (have worked) for me. These or your own variants may work for you.

     

    E
    24 Jul 2010, 08:19 AM Reply Like
  • Harry Tuttle
    , contributor
    Comments (2221) | Send Message
     
    The average recommended asset allocation for a 50 year old is around 65% stocks.

     

    In other words, 2/3 of the money is invested in an asset that MAY GO DOWN.

     

    Unless you buy the idea the stocks always go higher, the US financial advice industry is giving people terrible advice.

     

    I have a relative who is an 85 year old widow (definitely NOT planning for retirement) her adviser STILL recommends stocks.
    25 Jul 2010, 11:29 AM Reply Like
  • untrusting investor
    , contributor
    Comments (9923) | Send Message
     
    Harry,
    So true. But the bigger problem is there just aren't any safe places to invest right now. Bonds will eventually suffer losses when interest rates start to rise. Real estate may stay down and go lower for quite some time yet. CD's pay almost nothing. Equities have substantial risk of yet another large sell-off. Most PM's are already near record highs. So where can one invest, make some decent returns, and not have large downside risk? Not any easy question to answer. Even if one hedges, the cost of hedging will eat up significant amounts of any return. And finally, if inflation does happen to take off, although unlikely in the very ST, then cash will be a pretty poor place to be as well. A most dangerous environment for investors no matter which direction one looks.

     

    Any suggestions?
    25 Jul 2010, 02:06 PM Reply Like
  • Tack
    , contributor
    Comments (12770) | Send Message
     
    Untrusting:

     

    Yes, several ideas for this market that I have mentioned in other threads:

     

    1) Selected preferred stocks or ETF's that focus on preferred shares. Preferred shares usually offer attractive dividends; the typical are less volatile than common shares; their dividends cannot be cut, although some are subject to suspension, but this is rather atypical, and if they are cumulative, any suspended dividends must be paid in full (as Ford just did on their "S" series).

     

    2) Convertible bonds or convertible ETF's. The benefit here, again, is usually attractive current interest payments that cannot be suspended, the stability of bond-like performance on the downside and the upside kicker of convertibility, should equity prices advance.

     

    3) Floating-rate-bond ETF's. These issues are now selling at rather low prices, relatively, since interest-rate benchmarks, like prime and libor, are very low. However, the yield are still attractive, and as usually these issues are based on senior bonds or secured loans, they offer good liquidation protection in the event of adverse events. But, probably, their best advantage is that with interest rates at all-time lows, there's sizable risk of increases in the future, and floating-rate issues offer ideal protection against higher rates and inflation.

     

    4) Agency REITs. These entities invest all or mostly in mortgage securities that are 100% guaranteed (P&I) by the U.S. government They make their money off the interest-rate spreads between short-term and long-term rates. They offer extraordinarily high yields. Their principal risk is that they will see their share prices drop, if interest rates increase, so they, unlike the convertibles and floaters, are a choice for a continued slogging, low-rate environment, if none thinks that's where things will stay.

     

    5) Oil, energy and natural-resources shares and ETF's. Many of these issues are selling at or near multi-year lows, so much so that their yields are quite attractive, even if underlying prices remain stagnant. The risk of significant downside moves, from this point, appeared muted, while they would perform in sterling fashion if the economy and/or inflation picked up. A really great hedge for a recovering economy and/or inflation, coupled with attractive yields, if things remain moribund. (I'd add that the recent hullabaloo surrounding BP has dragged down energy issues in sympathy for absolutely no good reason, as, if anything, supply will be constrained further by BP events, so energy prices are likely to come under demand pressures.)

     

    Good luck.
    25 Jul 2010, 03:13 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9923) | Send Message
     
    Tack,
    Some very good recommendations and almost certainly significantly less risky than most other alternatives in the market. Thanks for taking the time to post them. Would agree that small investors should take at look at some of your investment areas.
    25 Jul 2010, 08:02 PM Reply Like
  • Harry Tuttle
    , contributor
    Comments (2221) | Send Message
     
    Often, it is better to focus in not losing. Equities only look attractive because of the marketing machine behind them. From a risk-reward point of view, you are better off with bonds. If you don't like the risk for the returns they offer ("better off" is only relative to equities), it is better to sit in 3-month bills at zero and wait until things get cheap. If you followed this strategy since 1997 you are well ahead of all the so-called professionals.
    27 Jul 2010, 10:37 AM Reply Like
  • Tack
    , contributor
    Comments (12770) | Send Message
     
    Harry:

     

    The very fact that it already worked well, so well in fact, the Treasury yields are at all-time lows, suggests that loading up on them now, or even remaining loaded up, is where most of the peril lies. There are plenty of equity issues --common and preferred-- that are depressed in price, offer extremely attractive current yield (income) and have much more upside potential than downside risk, at current prices.

     

    To make future gains, one must discover value, not hold issue where the value (or beyond) has already been attained.
    27 Jul 2010, 10:48 AM Reply Like
  • Harry Tuttle
    , contributor
    Comments (2221) | Send Message
     
    Tack: price, is in the eye of the beholder. In this context, "depressed in price" doesn't make sense unless it is relative to something else. Unless, of course, you are fortunate enough to know where we are headed. I do not possess such wisdom.

     

    I am sure there is a similar argument to sell short.
    27 Jul 2010, 08:04 PM Reply Like
  • Tack
    , contributor
    Comments (12770) | Send Message
     
    Harry:

     

    It's not about guessing short-term direction; it's about assessing history and value.

     

    We don't know direction. Nobody can accurately time the market. Some luckily guess right and then get accolades. Then, they can't repeat.

     

    However, there are things we do know:

     

    We know, for example, that Treasuries are at all-time low yields. That's an indisputable fact. What's the probability that Treasury interest rates will be lower, or even near current rates, a year from now, or beyond. I'd say the odds are extremely poor both because the economy is gradually shaping up, and the Government has created vast sums of money that they'll never get back into the genie's bottle. Inflation, at some point, is virtually assured.

     

    On the side of equities, there are numerous issues in various sectors, selling at a mere shadow of their former highs, even as their incomes and revenues have not dropped nearly proportionately. This seems to suggest that equity values are better than previous levels, certainly far away from all-time highs. I can't say when they'll next return to higher P/E's, but I can say with reasonable confidence that their prices have a better chance to increase than do those of "safe" Treasuries.

     

    In my view, the way to play this market is to find depreciated prices for issues (ETF's, bonds, preferreds and common) with significant and assured yields, then, add shares in a diversified fashion. Then, if the market is stagnant, the yields will offer a handsome reward for waiting, and if the markets increase, one will reap the yields, plus the share advances.

     

    This strategy has worked very well for me through many business cycles, and I don't see why it won't continue to function, as expected.
    27 Jul 2010, 09:07 PM Reply Like
  • Harry Tuttle
    , contributor
    Comments (2221) | Send Message
     
    Tack:

     

    "We don't know direction. Nobody can accurately time the market. ...
    However, there are things we do know:

     

    ... I'd say the odds are extremely poor both because the economy is gradually shaping up,..."

     

    You see? Your view has embedded the notion that the economy is getting better. I am not so sure and would definitely not bet in favor or such a prediction.

     

    Thus, if you are talking about buying companies whose value will allow you to go comfortably through another recession, then I agree with you. On the other hand, if your investment is based on "the economy is getting better or will get better" I think you are in the same camp with the other bulls.

     

    Short-dated treasuries offer zero return, but they beat the market in 2008 and they may again beat the market in the future. I'll buy equities when they get cheap on actual results. I ignore Wall Street estimates because I have seen their factory (an analyst extrapolating management's projections to arrive at target price)

     

    All the best.
    28 Jul 2010, 11:19 AM Reply Like
  • Tack
    , contributor
    Comments (12770) | Send Message
     
    Harry:

     

    This is how you win in both cases:

     

    "In my view, the way to play this market is to find depreciated prices for issues (ETF's, bonds, preferreds and common) with significant and assured yields, then, add shares in a diversified fashion. Then, if the market is stagnant, the yields will offer a handsome reward for waiting, and if the markets increase, one will reap the yields, plus the share advances."

     

    Buying Treasuries at all-time low yields --repeat: the lowest yields in history-- hardly seems like a conservative or 'safe" bet in any circumstances. That's just as much a bubble as techs in 2000 or energy in 2002. Even cash would be safer, if not inclined to be invested.
    28 Jul 2010, 11:27 AM Reply Like
  • nightfly
    , contributor
    Comments (1017) | Send Message
     
    Inflection points are where the arguments are most heated. I think we are there.

     

    Some points: treasuries yields are still quite low; the close on the last several rallies has been sold off or been week; unemployment continues to rise; financials have been week; and lots and lots of puts vs calls (5to1) being bought in Sept/Oct, cheaply I might add.
    23 Jul 2010, 09:47 PM Reply Like
  • Barry Crocker
    , contributor
    Comments (441) | Send Message
     
    Yup ... at some point ... probably Wednesday or Thursday of next week, the contrarian bulls among us will turn into bears.

     

    Way too many bulls for the bulls liking : )
    23 Jul 2010, 10:59 PM Reply Like
  • qishenhuang
    , contributor
    Comments (60) | Send Message
     
    Don't have a religion regarding the market. As Pres. Clinton said, go with the majority.
    23 Jul 2010, 11:52 PM Reply Like
  • nobby73
    , contributor
    Comments (1177) | Send Message
     
    Corporate earnings have been strong relative to last year (remember how that was) and have shown Q-on-Q growth all of which is consistent to what we know has been happening, which is a huge rebuild in inventories. Now we are at the stage, as Bernanke has said, where we need the end user demand to come through and actually take the products off the shelves. The government demand is or should be rolling off but we have the consumer still with his back to the wall. Jobs numbers are not good, housing is as bad as expected and people are deleveraging as they should. There has been an improvement in consumption, but it is not strong enough yet to correspond with the increase in industrial production. The reason Bernanke looked so anxious is because he cannot be certain we can pull this off. There is a limited time period for the government to bring the deficit under control, yet to end the tax cuts would strangle demand. The economy is boxed into a corner and there is only a very small possible exit

     

    Anyway, what's driving the market? Seems to me the Fed is behind this, one way or another, and I can't really blame them. However, to postulate the market is 30% to 40% undervalued is simply lunacy and assumes there is a 100% certainty that the economy will not only avoid a double dip, but continue to grow strongly. This means you should ignore almost all economic data and only focus on historic earnings growth, believe what the CEOs tell you, and buy into one of the most manufactured rallies in history.

     

    The disagreements in this thread seem to be between what to do to make money in the short term and what to do to fix the economy in the long term. Bernanke seems to think they are the same thing, but god help us if he is wrong.
    24 Jul 2010, 07:00 AM Reply Like
  • Harry Tuttle
    , contributor
    Comments (2221) | Send Message
     
    What is driving the market is the huge asset-liability gap in pension funds. They are doubling-down trying to bridge this gap with "future equity returns" (after losing money for over a decade with the overweight equity strategy). If it fails, "I'll be gone and you'll be gone".

     

    This is the new American way.
    27 Jul 2010, 11:25 AM Reply Like
  • untrusting investor
    , contributor
    Comments (9923) | Send Message
     
    Harry,
    One has to doubt that pension funds are really the driving force behind the equity markets, even though they are stretching for returns. If one nets out what they are paying out for retirement benefits to current retirees vs. what they may be taking in from current contributors, then it probably is not enough money to really be massive buyers in the equity markets anyway. That plus most of them were probably not panic sellers in the 08/09 crash and simply held. Pension funds are widely diversified in multiple asset classes anyway from everything I have seen about their investments.

     

    Nor are the endowment funds likely big buyers in the equity markets these days either. Their contributions are likely down significantly and they are having to draw to offset funding losses. Plus they are widely diversified just like pension funds.

     

    Maybe the insurance companies and soverign wealth fund buyers have some excess cash and possibly are marginal buyers providing some support. But you also have some big areas that are counteracting that such as mutual funds. They have to be big net sellers due to both customer withdrawls and also the 20:1 shift out of equity funds and into bond funds. Also the hedge funds have indicated they have been reducing their equity positions since Mar/Apr/10.

     

    The above cover most of the big players that really can account for big buying or selling.

     

    That really leaves only the big traders such as the prop desks, the HFT'ers, the algo traders, etc. Which by most accounts are responsible for about 70-80% of the daily volumes in the equity markets these days. And one has to guess that they are receiving massive financial backing from the Fed and Treasury. They are good soldiers and they are trying to keep the markets up per government instructions. The problem is they just can't find any buyers. That is why on up days there is no volume. The "real longs" keep selling as much as they can and getting out on up days. But on down days the volumes go up, as the traders can't take hugh losses and have to dump some of their accumulated shares. Thus they are just dumping to each other to get out and volumes go up, so they are liquid to trade another day.

     

    Just how we see it. The real wildcard is how much money are the Fed and Treasury willing to front the big traders to try and keep the markets up. And how much are they willing to lose in those efforts. The other wildcard is the big players such as the pension funds, insurance companies, soverigns, hedge funds, and mutual funds. If they assess the macro fundamentals as continuing to get worse and decide to start exiting, then they have enough that even the big traders with Fed and Treasury support may not have enough to stop a spiriling sell-off on big big volumes. And if the big traders see that and pile on with switching to large short positions (basically telling the Fed and Treasury to take a temporary hike), then a fairly quick move back toward Mar/09 lows is certainly not impossible.

     

    Time will tell, but we personally don't see any buying interest and that has been a hugh problem for the equity markets for months and months now. And will prove to be the "killer' problem for them going forward.

     

    The big catalyst for equity markets would be "force outs" from the bond markets and forcing a move out of bonds of hundreds of billions in bond investments. That would only happen if interest rates started to rise quickly and principle losses were forced on bond investors by the rising rates. But that isn't going to happen anytime soon, because Banana Ben has promised it won't. And the Fed and Treasury really don't want rising rates anyway as they have many trillions more they want to borrow at cheap rates. We think the absolute critical need for ultra cheap rates will trump the desire to keep the equities markets propped up in the coming months and into 2011. Besides the IRS and Feds are already licking their chops over the 2010 taxable gains they will tax before the 2011 tax increases come into effect.
    27 Jul 2010, 07:04 PM Reply Like
  • Harry Tuttle
    , contributor
    Comments (2221) | Send Message
     
    Thanks for the long reply. Actually my point is that mutual funds (proxy for the individual investor) continue to see outflows while most professionals continue to buy. In my opinion, the whole issue boils down to greed vs fear (it it is your money) or fear of underperformance (if it is not).

     

    It is easy to overlook the problems if, in the end, we do not participate in the potential losses. The professionals are (mostly) moving the market and they play with other people's money.
    27 Jul 2010, 08:09 PM Reply Like
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