Bearish and Long

by: Roger Nusbaum

roger nusbaumRoger Nusbaum submits: The market is off to a big start for 2007.

The more it goes up the more bearish I become in thinking that it is over extended, over due for a drop, and there are anecdotal problems (like sub-prime mortgage failures) that all point to trouble coming.

I have more equity exposure now than when the quarter ended. I am ahead of the market (as measured by the generic portfolio I maintain on Yahoo Finance) by a noticeable amount so far. And the trend has been to move higher.

My sentiment is bearish. The market is much higher than when I first, incorrectly as it turned out, became bearish. The defensive action taken last summer was far from extreme, and I am less defensive than I was a few months ago. Technically speaking we are closer to the next correction than we were six months ago.

The point here is one I try to make often. If I had made a big bet on a correction last summer, client accounts would be smaller than they are today. You and I are not smarter than the market, and since the market goes up the vast majority the time, you should not have too much in cash relative to your allocation very often. Rarely it makes sense to raise a lot of cash, as opposed to some cash, and in those times go for it -- but those times don't come along too often.

I believe that when the market turns (not a prediction, just the acceptance that at some point there will be a correction or bear market), the actual turn will not be caused by anything in particular; it will just happen. And then pundits will, after the fact, tell us what caused the turn. The pundits may get that part of it right, but big turns tend to just happen. The tech bubble could have easily peaked six months earlier or later. There was no reason for it turn in March per se -- it just did.

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