It should be clear from the name atop their web page that the folks at Prudent Bear are likely to have views that are a bit out of step with the mainstream investing public, particularly since the meteoric rise in share prices that began in the spring, but, nonetheless, it seemed all too easy to find views in sync with their own in this morning's headlines.
Market & Finance
VIX Signals S&P 500 Swoon as September Approaches
Bloomberg 08/10/2009 04:04 AM
PIMCO's El-Erian: Bull market in U.S. stocks unlikely to last
Reuters 08/10/2009 05:04 AM
Templeton’s Mobius Says Stocks Face 30% ‘Correction’ This Year
Bloomberg 08/10/2009 04:03 AM
While it's easy to dismiss the stock market views of someone like Mr. El-Erian who, as an employee at the the world's largest bond fund managers at Pimco, would presumably rather see people buying bonds than stocks, the other two reports are not so easily cast aside. Options traders are increasing bets that the steepest rally in the Standard & Poor’s 500 Index since the 1930s won’t survive September, historically the worst month for U.S. equities.
Traders are expecting a sharp increase in volatility over the next month or so, normally not a good thing for equity markets.
Traders were betting the VIX, a gauge of expected stock swings, would increase 13 percent in the next five weeks, according to futures prices at the end of last week compiled by Bloomberg. That’s the biggest spread since August 2008, before the S&P 500 suffered the steepest two-month plunge in 21 years. The indexes have moved in the opposite direction 81 percent of the time over the past five years, Bloomberg data show.
VIX futures above the level of the index show investors expect fluctuations to widen and stocks to retreat. The S&P 500 has rallied 49 percent in five months, pushing valuations to the highest levels since December 2004. The S&P 500 gained 2.3 percent last week as reports showed home sales rose and the unemployment rate fell.
History shows that U.S. investors lose the most in September. The benchmark index for American equities fell 1.3 percent on average since 1928 that month, data compiled by Bloomberg show.
Options traders are increasing bets that the steepest rally in the Standard & Poor’s 500 Index since the 1930s won’t survive September, historically the worst month for U.S. equities.
Mark Mobius, sometimes referred to as a perma-bull, has similar trepidations about share prices and offers some estimates as to what sort of a "correction" might be expected.
Mark Mobius said global stocks will drop as much as 30 percent following their recovery from last year’s rout as companies take advantage of the rebound to sell more shares.
“When you have these rapid increases, almost without correction, you will definitely have a correction at some point, so we can expect a lot of volatility,” Mobius, the executive chairman of Templeton Asset Management Ltd. said in an interview in Kuala Lumpur today. “Increases of 70 percent will be followed by decreases of 20 to 30 percent.”
The so-called correction “can happen anytime, probably this year,” Mobius said. “It may not be all at once, you may not see a decrease of 20 percent suddenly, it could be 10 percent here, and a rise of 5 percent then another 10 percent, you’ll see this kind of volatility in the markets.” He added that he was referring to shares “globally.”
While a 30 percent correction after a run-up of 70 percent may not sound all that bad, it will likely come as a surprise to most investors to learn that these two moves occurring in succession will not leave your holdings up 40 percent when they are done, but, rather, less than 20 percent higher than your starting point.
Food for thought...