Is this rally for real?

[James5v]

I also believe that the worse is not over; however, I watch as the market continues to move in an upward direction while I receive less than 1% on my government MMFs'.

So when does the market begin its retreat or is it just going to stay around current levels for another year or so? Also, what about the credit card debt in the country? What about future inflation? I could go on and on.

[ziggy29]

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Originally Posted by James5v So when does the market begin its retreat or is it just going to stay around current levels for another year or so? Also, what about the credit card debt in the country? What about future inflation? I could go on and on.

The "conventional wisdom" is that this is already "baked in" to the markets. And to a significant degree, I think it is. The question then becomes: will these potential negative factors wind up being worse than expected or not? If the market is expecting bad news that registers '9' on a 10 scale (10 being the worst) and it only gets news that registers a '7', even though it's still bad news the markets can rally because it's not as bad as the market was pricing into it. Similarly, if it came in as a '10', it could fall hard.

[FinanceDude]

The worst is not over. Since "everyone knows" its a sucker rally, why are stocks being bid up? There must be more suckers than I ever imagined. The market is ripe for a 20-25% correction by the end of summer. Not EVERYTHING is pirced into the market........

[NW-Bound]

With the advent of the inverse ETF's (bearish funds that go up as their underlying indices go down), investors can easily short anything they like. The "nice" things about these ETFs are that they are safer than traditional shorts, in that you can lose only all of what you put down. There are even 2x and 3x bearish funds that supposedly go up much more than their indices going down (in the short term that is). Hurray!!!

So, bears like thesweetlife can even use these funds to short the market inside an IRA, which was not possible before. It is a free country, and we still have free speech and can invest however we like. It is great. I love it.

[ziggy29]

I can't help but wonder how much these "inverse" ETFs and these "ultrashort" leveraged bear market funds (and for that matter the leveraged "ultralong" ETFs) are having on market volatility. We're making it so much easier for the average (and sometimes uninformed) investors to short the market and use leverage, and I'm not sure that's a good thing for those individuals or for the stability of the market as a whole.

[NW-Bound]

I am not sure, but the few I looked at have relatively small market caps ($1B or so). Surely they can cause some ripples in the market, but probably not tsunami waves.

[TheSweetLife]

The inverse ETFs aren't the cause of the down swings. There are so many economic factors causing the market down swings that it is ridiculous. I believe the worst is yet to come....just my opinion. No, I'm not a pessimist, just a realist.

[ziggy29]

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Originally Posted by NW-Bound I am not sure, but the few I looked at have relatively small market caps ($1B or so). Surely they can cause some ripples in the market, but probably not tsunami waves.

I think you're right under normal, relatively calm market conditions. But not too many months ago when the VIX was hitting all time highs, I was seeing a huge spike in volume on these leveraged ultralong and short ETFs (mostly the short).

[FUEGO]

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Originally Posted by ziggy29 I can't help but wonder how much these "inverse" ETFs and these "ultrashort" leveraged bear market funds (and for that matter the leveraged "ultralong" ETFs) are having on market volatility. We're making it so much easier for the average (and sometimes uninformed) investors to short the market and use leverage, and I'm not sure that's a good thing for those individuals or for the stability of the market as a whole.

What's not to like? Higher volumes, higher liquidity, more active markets, lower bid/ask spreads. More price discovery. Higher revenues due to higher transaction costs for the market intermediaries = more profits for owners of financials like us.

At the end of the year, does it really matter whether the market was up or down more than a percent half the days during the year? For buy and hold types, the answer is generally no.

[NW-Bound]

One can argue that the sellers or bears may do good deeds by reducing the growth of any potential bubble. In 2000, I was swept up in the tech bubble, and I swore no more. Came 2007 and the housing bubble, I knew enough to stay away from home builder stocks and financial stocks, but still got hurt. There might have been inverse ETFs on these crooked financial companies then, but I did not think of it. Yeah, short them to the ground, all these bankers. I would not make much money, but at least enough to cancel out the losses on my other "innocent" stocks.

PS. Wouldn't short financials now. In fact I should look into buying some. They have fallen off their horses, and the ones that did not die after being dragged deserve another life.

[NW-Bound]

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Originally Posted by ziggy29 I think you're right under normal, relatively calm market conditions. But not too many months ago when the VIX was hitting all time highs, I was seeing a huge spike in volume on these leveraged ultralong and short ETFs (mostly the short).

There are probably some cancellations there between these ultralong and ultrashorts. I do not own any, and have looked at them briefly out of curiosity. In early 2000, during the tech bubble burst, there was so much volatility that made your head spin; yet there weren't any of these ultra ETFs then. I remembered it as yesterday because yours truly was deep in it. I had 80% of portfolio in semiconductor and telecoms, though not a single dotcom. Got hurt bad and lost 50%, but I survived and recovered.

Recently, have read some postings here where people have lost 50% in this downdraft, yet do not claim to be as heavily weighted in financials as I was in tech in 2000. Whoa! This is truly a biggest recession since the Great One. My lesson in 2000 saves me this time. I've got scars to prove it.

[REWahoo]

Is this rally for real? Here is a guy who thinks so:

Why the Countertrend Rally Can't Be Stopped

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The market is recovering from an unusual and vicious financial crisis; this is a time in which market participants, after having been petrified, are starting to come to grips with the fact that Great Depression II is probably not going to happen. This is also an extraordinary time - one in which vast numbers of market participants are wrongly over-allocated to cash. As investors adjust their asset allocations to account for new realities, the rally in financial markets will be extremely powerful. Indeed, because of the large cash allocations, there’s the danger that at some point, things could get out of hand on the upside. Because of the effects of massive inflows by institutions that invest mechanically and are essentially insensitive to fundamentals, the market could overshoot to the upside, failing to properly account for the risk (as opposed to the certainty) that things could get materially worse in 2010. However, we’ll worry about the risk of bullish overshoot later. ... he financial crisis is over, for now. And for now, I believe this market is going higher - much higher.

[Dawg52]

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Originally Posted by REWahoo Is this rally for real? Here is a guy who thinks so: However, we’ll worry about the risk of bullish overshoot later. ... he financial crisis is over, for now. And for now, I believe this market is going higher - much higher. Why the Countertrend Rally Can't Be Stopped

Sounds good to me. I have no problem with regaining some of my losses. The tricky part will be knowing when to get out before the next slaughter.

[REWahoo]

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Originally Posted by Dawg54 The tricky part will be knowing when to get out before the next slaughter.

I see yet another convert to the DMT school of investing...

[Dawg52]

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Originally Posted by REWahoo I see yet another convert to the DMT school of investing...

Not really, just found a hole in the sand with my name on it. Waiting on me to check in.

[NW-Bound]

DMT?

Note how oil and other commodities have been moving up as investors anticipate that the world-wide recovery is imminent. If and when the bears capitulate, the move up can be explosive.

It takes guts to short the market now. If I were a bear, I would stay on the sideline. But then, I have always been a bull. Well, a bull crossed with a chicken. Buy, buy, buy

[ziggy29]

Quote:

Originally Posted by REWahoo Is this rally for real? Here is a guy who thinks so: Why the Countertrend Rally Can't Be Stopped

"Can't be stopped" is hyperbole, I think, but in the short run anything can happen. The author here is correct that there is a huge amount of cash that got spooked out of the market and that we shot down so fast that some amount of snapback was inevitable. I'm not sure I share his belief that the news will start getting a lot better in the next few months and I sure as heck don't see the S&P getting as high as 1350 any time soon.

[REWahoo]

...

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Originally Posted by NW-Bound DMT?

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Originally Posted by Jeb-NY Standard Acronyms You May Find on the Forum DMT - Dirty Market Timer

[NW-Bound]

Ah, you are talking about me!

But I always consider myself a CMT.


PS. Portfolio 22% below Oct 07 personal high watermark. Still only 57% in equities. Buy, buy, buy.

[REWahoo]

Quote:

Originally Posted by ziggy29 ... and I sure as heck don't see the S&P getting as high as 1350 any time soon.

There's the rub. None of us* can see what's going to happen to the market anytime soon. Since I don't know when to get in or out of the market I choose to go with an asset allocation I think I can live with and hang on for the ride.

I view it as the least worst investment strategy available to me.


* Excluding those who claim to be able to predict the market accurately, every time, all the time - and drive by after the fact to say "I told you so".