Dear Higgie,
Higgenbotham wrote:
> It seems to me that a higher potential for a panic selloff in the
> stock market exists at present than has existed at any time this
> year. Almost every bearish advisor or blogger that I read is
> looking for "one more wave up", or a "Santa Claus rally", etc.,
> then the long awaited move down. I don't see anyone pounding the
> table for the bearish case this week. Does anyone else have a link
> to someone who thinks a large move down is imminent? Yet, things
> have never looked more out of whack. Meanwhile, there seem to be a
> growing number of potential triggers out there. Granted, I was
> saying the same type of thing 4 months ago. I'm still short, by
> the way. Maybe I need to give up before the market will go down.
> My loss is up to 9% but I don't feel uncomfortable with that at
> this point given what I see.
Nobody is saying that a large move down is "imminent," but a number
of people are saying that it's coming next year.
Of course, as you say, they've been saying the same type of thing for
several moonths.
John Hussman wrote:
> I should have assumed that Wall Street's tendency toward reckless
> myopia – ingrained over the past decade – would return at the
> first sign of even temporary stability. The eagerness of investors
> to chase prevailing trends, and their unwillingness to concern
> themselves with predictable longer-term risks, drove a successive
> series of speculative advances and crashes during the past decade
> – the dot-com bubble, the tech bubble, the mortgage bubble, the
> private-equity bubble, and the commodities bubble. And here we are
> again.
> We face two possible states of the world. One is a world in which
> our economic problems are largely solved, profits are on the mend,
> and things will soon be back to normal, except for a lot of
> unemployed people whose fate is, let's face it, of no concern to
> Wall Street. The other is a world that has enjoyed a brief
> intermission prior to a terrific second act in which an even
> larger share of credit losses will be taken, and in which the
> range of policy choices will be more restricted because we've
> already issued more government liabilities than a banana republic,
> and will steeply debase our currency if we do it again. It is not
> at all clear that the recent data have removed any uncertainty as
> to which world we are in.
>
http://www.hussmanfunds.com/wmc/wmc091130.htm
David Rosenberg in 2010 Outlook wrote:
> The credit collapse and the accompanying deflation and
> overcapacity are going to drive the economy and financial markets
> in 2010. We have said repeatedly that this recession is really a
> depression because the recessions of the post-WWII experience were
> merely small backward steps in an inventory cycle but in the
> context of expanding credit. Whereas now, we are in a prolonged
> period of credit contraction, especially as it relates to
> households and small businesses (as we highlighted in our small
> business sentiment write-up yesterday).
> In addition, we have characterized the rally in the economy and
> global equity markets appropriately as a bear market rally from
> the March lows, influenced by the heavy hand of government
> intervention and stimulus. But in classic Bob Farrell form, 2010
> may well be seen as the year in which we witness the inevitable
> drawn out decline that is typical of secular bear markets. ...
> The defining characteristic of this asset deflation and credit
> contraction has been the implosion of the largest balance sheet in
> the world — the U.S. household sector. Even with the bear market
> rally in equities and the tenuous recovery in housing in 2009, the
> reality is that household net worth has contracted nearly 20% over
> the past year-and-a-half, or an epic $12 trillion of lost net
> worth, a degree of trauma we have never seen before.
> As households begin to assess the shock and what it means for
> their retirement needs, the impact of this shocking loss of wealth
> on consumer spending patterns in the future is likely going to be
> very significant. Frugality is the new fashion and likely to stay
> that way for years as attitudes toward discretionary spending,
> homeownership and credit undergo a secular shift towards prudence
> and conservatism.
>
http://www.businessinsider.com/henry-bl ... erStock%29
Bloomberg wrote:
> Traders are boosting bets in the U.S. options market that this
> year’s rally in the Standard & Poor’s 500 Index won’t last.
> The fourth most-active options to sell the SPDR Trust Series 1
> yesterday were December 2010 $55 puts, contracts with so-called
> strike prices more than 50 percent below the cost of the
> exchange-traded fund known as the SPY. S&P 500 options to protect
> against losses in 2010 are 33 percent more expensive than
> one-month contracts, among the highest premiums in the past five
> years, according to data compiled by Bloomberg.
> “The real news next year would be if we don’t get a 5-to
> 10-percent correction,” said Stephen Wood, who helps manage $170
> billion as chief market strategist for North America at Russell
> Investments in New York. “The rally since March has been all but
> uninterrupted.”
>
http://www.bloomberg.com/apps/news?pid= ... 9cBk&pos=6
Art Cashin appears frequently on CNBC, and his theory is that there
will be a geopolitical event that will cause a flight to safety,
resulting in a sharp strengthening of the dollar, resulting in a
reversal of the carry trade. Traders have been borrowing dollars and
investing in the stock market, thus pushing stock prices up. If the
dollar starts strengthening, then traders will have to sell their
stock positions to repay the dollars.
This is consistent with the article that I wrote in October:
** Nouriel Roubini apparently is predicting a global market crash
** http://www.generationaldynamics.com/cgi ... 27#e091027
The problem today is that anyone who claims that the market will go
down looks like an idiot because the market keeps going up.
And what can anyone even say? Valuations (P/E ratios) based on
reported earnings are around 80. Valuations based on "operating
earnings" are around 30. Both figures are astronomically high, and
the market keeps going up. In order to argue that stocks are
overpriced, you have to have some kind of realistic basis from which
to launch your argument. But no realistic basis exists any more.
So I think that there are two kinds of people today, among the
financial analysts.
There are people like Laszlo Birinyi who live in a fantasy world.
** Laszlo Birinyi provides insight on his fantasy price/earnings computations
** http://www.generationaldynamics.com/cgi ... 22#e090522
And there are people like the ones I quoted above who at least look
at some fundamentals. You cannot look at the fundamentals without
being a bear. The people who aren't bears are airheads.
We are in a deflationary spiral, and it is 100% certain that there
will be a major correction -- probably 30-40% to begin and then,
following the 1929-32 pattern, a further plunge to Dow 1500 or so over
the next few years. The shock will be much greater than it would have
been if the crash had been allowed to happen earlier.
John