The Bears Are Getting Hungry

[wabmester]

I follow the commentary of a couple of permabears, and I haven't seen them this bearish in a while.

From John Hussman:

Some of the worst market outcomes on record have followed on the heels of overbought rallies in periods when both valuations and the overall quality of market action have been unfavorable. In my view, Friday's rally on a distinctly stagflationary GDP report represented a good opportunity to do some lightening up of stock market exposure for investors who have not already done so, and would not easily tolerate a decline of 30% or so in the major indices.

That's about as “bearish” a comment as you'll get from me.

From Bill Fleckenstein:

So, it's time for me to be more of an investor on the short side. This is the first time I will have taken that tack since the 2000-2002 period.

This should be fun.  FWIW, I think Hussman is spot on this time.   He's got the macro picture nailed.

 

[Siv]

I consider myself a careful, conservative person. in my short lifetime, I've been burned with so called investments so my attitude change towards suspicious, scared...you get the picture. It's getting difficult nowadays to just close my eyes and jump in...ok, I know some may say I lose long term, just choose balanced asset allocation, close your eyes and jump in, a bit paranoia. Lately I think getting 5.04% money market fund is not bad.

Another is currency hedging, buy into the market that is different than US dollar. Housing effect can be very bad in US, how bad it is will start show early 2007 when people realize how bad winter sale is.

This indeed will be a very good lesson to go through. I currently am researching European market.

 

[IHateCNBC]

I switched to the short side the last 15 minutes of trading on Friday.

Another "the Fed is done" rally to scalp.   

 

[unclemick]

I still think it's hormones - I notice over the years that my stock picking/selling activity seems to roughly coincide with football season.

Fall/winter - makes me more bearish - paradox being that's when I think I'm bargin hunting.

Oh well - Target Retirement as lead sled dog for ER and a few stocks as lagniappe.

heh heh heh - may try some pssst Budweiser for a while - to go with the old psst Wellesley.

 

[IHateCNBC]

Fall/winter - makes me more bearish - paradox being that's when I think I'm bargin hunting.

Last 47 years in a row we have had a end of year rally that starts around Halloween and ends the first couple of days of January. 

 

[unclemick]

Hmmmm

I used to think 'sell in May and go away' was a hoary old myth.

But hindsight - looking at my activity level over the last forty years - I begin to wonder.

heh heh heh

 

[cute fuzzy bunny]

So wab, you think we're overbought and valuations arent favorable?

I think thats true in some segments, but others are cheap and oversold. I wouldnt be a buyer in small caps or reits anytime soon, but...

 

[Mwsinron]

Seems like earnings were pretty good and large caps are undervalued. Id buy and just ride out the "bear market" 

 

[Spanky]

Lately I think getting 5.04% money market fund is not bad.

This indeed will be a very good lesson to go through. I currently am researching European market.

I have 25% in money market for the reason that you cited. I would be cautious about the Eureopean market because of its recent runups.

 

[Spanky]

So wab, you think we're overbought and valuations arent favorable?

I think thats true in some segments, but others are cheap and oversold. I wouldnt be a buyer in small caps or reits anytime soon, but...

One of the recent Fidelity newslatter echos the same settlement: large caps are cheap, sector such as technology or financial should outperform.

 

[wabmester]

So wab, you think we're overbought and valuations arent favorable?

I think thats true in some segments, but others are cheap and oversold.  I wouldnt be a buyer in small caps or reits anytime soon, but...

I think valuations look fine if earnings continue to be as strong as they have been for the last couple years.   The problem is that earnings over the last couple years have been way over the norm, and it looks like it's about time for them to revert.   If earnings get cut in half, then suddenly those reasonable valuations will look very unreasonable.

Consumer spending is responsible for 70% of GDP.   Consumers are tapped out.  We've had zero or negative savings for a while now, and that is unsustainable.   I think housing is the driving factor, and we're already starting to see the reduced wealth effect show up as reduced spending.

 

[Gone4Good]

Consumer spending is responsible for 70% of GDP.   Consumers are tapped out.  We've had zero or negative savings for a while now, and that is unsustainable.   I think housing is the driving factor, and we're already starting to see the reduced wealth effect show up as reduced spending.

The over extended consumer has been the driver behind 13 of the last two recessions.

I'd tend to agree with the thesis if it hadn't been completely wrong for the past twenty or so years. Everyone says "it can't continue" but it always does. Maybe this time it will finally be different but I've stopped worrying about the U.S. consumer. Your real worry is going to be something that no one else is focusing on . . . like China imploding and taking most of the rest of the world with it. That seems more inevitable then the idea that Joe Six Pack will stop spending.

 

[d]

seems there are always many reasons to be bearish ... more worrysome for the markets, perhaps, would be widespread optimism and enthusiasm.

 

[wabmester]

I'd tend to agree with the thesis if it hadn't been completely wrong for the past twenty or so years.  Everyone says "it can't continue" but it always does.

It turns out that while we currently have a negative savings rate, spending as a percentage of net worth has been fairly constant.   I think this is evidence of the wealth effect.   So, what happens when people feel less wealthy?

Check out this graph of the housing market vs consumer spending:

So, it's not a matter of "it can't continue" as much as it's just the way things have always played out.

 

[IHateCNBC]

 

[Craig]

Wish I was smart enough to time it within 15 minutes ...

I've lost much more being too bearish, than too bullish. Count me as one who has predicted 20 out of the last three recessions.