Bear Market Rally?

[Running_Man]

Job losses decline in April, jobless rate at 25-year high - May. 8, 2009

But the unemployment rate, as bad as it was, doesn't indicate the extent of the pain being felt by job seekers. The report showed 27% of the 13.7 million unemployed Americans have been out of work for more than six months, the highest percentage of long-term unemployed among the overall pool of jobless in the 61 years that reading has been tracked.

Almost one out of six members of the labor force are either unemployed, working part-time when they would prefer to work full-time, or are out of work and have become so discouraged that they did not look for work and thus not counted in the unemployed total

The above is a quote from the "positive" news received on unemployment today. While I still am positive short term on stocks for now, I see storm clouds ever increasing on the horizon.

With the long term treasury rates beginning to make meaningful increases, the long term bull market in 30 year treasuries which dates back to 1981 when yields were in the vicinity of 16 percent probably ended earlier this year with a spike down to 2.5 percent. With a need exceeding 100 billion per month to fund the US government, increases in the long-term rates will become more and more of an issue as the year unfolds and thoughts of 2010 needs become acute. The loss of trillions in housing will not be helped by an increase in mortgage rates. This is simply the key area to keep an eye on, future events are extremely effected by the housing issue.

Increases in taxes to fund these deficits as well as state deficits will sap the economy of needed umph despite the level of government "stimulus". Listening to state politicians on Chicago radio speak of not even addressing the deficits they see for this year, later as the fiscal years come close to an end, the drastic actions needed will become painfully clear to all.

And I am now wary that the rally may not last through the summer as I previously thought. If the 30 year treasury exceeds 5 percent for a yield in the coming months, I will take that point to drastically reduce my stock holdings once again. The key offset for me to watch is whether inflation is imminent as well, and for that I am watching the price of gold and silver. If those prices fall as bond yields rise, I will take that as a sign inflation is not a serious concern medium term and deflation may be much more likely, if however they start another run over $1,000 per ounce on gold then serious inflation may be a near-term issue. I personally just can't see the US running a 3 percent average inflation for the next 10 years with all the extraordinary acts in the last 18 months.


However, this has been a very fun rally to be engaged in and I sure hope it doesn't end soon. Not taking any stock profits just yet.

 

[haha]

However, this has been a very fun rally to be engaged in and I sure hope it doesn't end soon. Not taking any stock profits just yet.

Excellent analysis. Did anyone notice that oil is close to a double off its $35 bottom?

This is not a comfortable "coffee table" way to invest; but IMO it's what we have to look forward to maybe for a good long time. Perhaps all the catechism we have had pounded into our heads over the past 30 years will be as useful in the real world we face as all that other catechism was.

Ha

 

[FIREd]

I have recovered about half of my 10/2007-03/2009 losses in the past 2 months so I decided to take some off the table and rebalanced yesterday.

 

[ziggy29]

I need an eye exam soon.

At first look at the forum index, I thought I read "Beer Market Rally"...

We don't need that. The increasing taxes on beer are bad enough...

 

[LOL!]

I've been avoiding reading this thread because I expected it to be worse than CNBC financial porn. But I poked my head in and confirmed my expectations.

Going back to the thread title ... every rally is a bear market rally pretty much by definition.

 

[newporttony]

FWIW, Jeremy Grantham believes this rally is probably "real" and is predicting S&P 500 at 1000 - 1100 by year end. He is also predicting a few years of weak growth.

Normally I pay absolutely no attention to the market prognosticators, but I think Grantham is more thoughtful than most and he has been consistently bearish for the past 10 years.

 

[haha]

I've been avoiding reading this thread because I expected it to be worse than CNBC financial porn. But I poked my head in and confirmed my expectations.

Poor baby. Better hurry on home to Mama before the porn gets into your soul.

Ha

 

[audreyh1]

My retirement portfolio is up 11% since I rebalanced on Jan 15, and up over 25% since the market low of March 9, 2009. I'm getting pretty close to hitting my rebalance triggers on the upside - getting close to 60% equities instead of my 55% target.

Funny thing - my bond funds have rallied since a few days after March 9 as well, although the biggest one (DODIX) hit its low Nov 2008 and had already recovered quite a bit by March 9. Even though both asset classes have rallied, the equities have rallied so much more, leading to asset class imbalance.

(Knock on wood!)
Audrey

 

[Notmuchlonger]

However, this has been a very fun rally to be engaged in and I sure hope it doesn't end soon. Not taking any stock profits just yet.

Excellent analysis. Did anyone notice that oil is close to a double off its $35 bottom?

This is not a comfortable "coffee table" way to invest; but IMO it's what we have to look forward to maybe for a good long time. Perhaps all the catechism we have had pounded into our heads over the past 30 years will be as useful in the real world we face as all that other catechism was.

Ha

I still notice its not 147 a barrel. Who knows maybe when things pick up for real we will be talking about 200 a barrel.

 

[Snidely Whiplash]

Also, what to watch for isn't a "new all time high", its when the federal reserve starts yanking rates to control the money supply.

dshibb,

I think we are very much on the same page here. I should have clarified a bit more than I did. I agree with you 100%. I promised myself that at the "next all time high" I would take some off the table, although I like your indicator of the fed beginning to tighten, I think thats the second signal for me too. The bond sale results spooked me this week. I dont know if I have the stomach to wait a year after the fed starts to tighten (personal preference, not a commentary on your strategy). I would be willing to give up some potential gains in order to sleep better at night.

 

[TheSweetLife]

I think the bear market rally is over. I think next week will be the beginning of a downturn.

 

[REWahoo]

Nostradamus? Is that you?

 

[unclemick]

Have not achieved the Boglehead's Zen like 'don't know, don't care' but with 85% Target Retirement 2015 on full auto the Norwegian widow predicts the Saint's will look good early before the final low in November thus picking up a few more good stocks before the Saint's snatch defeat from the jaws of victory in December - the usual - Saint's don't make the play offs and stocks resume their upward bias.

That opinion and $4 might, I say might, get you something at the local Starbucks.



heh heh heh - I lost my really good crystal ball. .

 

[Notmuchlonger]

Have not achieved the Boglehead's Zen like 'don't know, don't care' but with 85% Target Retirement 2015 on full auto the Norwegian widow predicts the Saint's will look good early before the final low in November thus picking up a few more good stocks before the Saint's snatch defeat from the jaws of victory in December - the usual - Saint's don't make the play offs and stocks resume their upward bias.

That opinion and $4 might, I say might, get you something at the local Starbucks.



heh heh heh - I lost my really good crystal ball. .

Maybe the Steelers and Saints in the big one this year? Stocks go on a another 38% run up? Thats my prediction..

 

[dshibb]

snidely whiplash,

I think we are mostly on the same page here, too.

"I dont know if I have the stomach to wait a year after the fed starts to tighten (personal preference, not a commentary on your strategy). I would be willing to give up some potential gains in order to sleep better at night."
Make sure you realize that the fed funds rate has to approach the inflation rate in order for the fed to really cut off an asset bubble. For the fed rate to reach 3 or 4 percent probably wont do it. What you traditionally want to watch for is those really uncharacteristically big fed jumps like 75+ basis points(or several really close together 50 basis point jumps) after the fed reaches 4%(because those 25 basis point increases every fed meeting isn't going to cutoff serious inflation).

I ultimately will start selling once I feel the fed has rased the rate to my target(like you), but its going to be apart of a dollar cost averaging strategy out of equities and into muni's(most likely). The goal is to be completely out of equities by 1-1.5 years after. But the initial sales will start coming in during the first few months. I bet that I wont even have a clue when munis peak, so I'll need to be freeing up capital early. The last sales I make wont go into munis though, they're going to be spread into short term call options and slowly adding long term put options. That way I get to still participate in the market increasing as well as banking on the crash + a huge jump in volatility.

 

[TheSweetLife]

Nostradamus? Is that you?

Yes, I'm here. Downturn will continue for the next 4 weeks.

 

[Notmuchlonger]

Yes, I'm here. Downturn will continue for the next 4 weeks.

Do you have a newsletter?

 

[freebird5825]

I have something much better
.
.

 

[haha]

I have something much better
.
.

Very pretty. I did not know that tea leaves were so large.

 

[chinaco]

How to look at it depends on your time horizon... the new bull market is just starting!