Wednesday, August 26, 2009

Bulls of March Look Set to Trade in Their Horns

We didn't presciently anticipate the March 9 bottom but did recognize the 5% rally on the 10th as the start of something with legs (underestimating how long those legs would turn out to be)
Three days later we reiterated the call (while smearing some egg on our faces regarding the duration of the up-move) saying:
...Either way we'll head down, just a question of early April or later, and from what level.
I'd like to see the latter, if you're half-way competent at this stuff, volatility is your friend....
Mark Gongloff has as good a feel for the markets as any financial journalist out there. From the Wall Street Journal:

It feels good to be right. But the few analysts who accurately called the market's bottom in early March aren't feeling so great about where stocks are headed.

One of the most famous of this group, Jeremy Grantham, penned a note on March 10 entitled "Reinvesting When Terrified" that encouraged investors to buy, suggesting stocks were 30% undervalued.

Since then, the market has roared ahead, without stopping for a correction of 10% or more. Standard & Poor's 500-share index ended last week at 1026.13, up nearly 52% from its 12½-year low on March 9 and its highest close since Oct. 6. The Dow Jones Industrial Average is at 9505.96, up 45% since its March low.


Now, the chairman of Boston asset-management firm GMO and his colleagues say the S&P 500 has zoomed right past what they consider fair value of about 880, based on earnings estimates and historical price-to-earnings ratios.

Mr. Grantham sees "seven lean years" of a sluggish market ahead, to atone for what the firm believes was a long era of overpriced stocks, according to his newsletter.

"The past 12 years have seen two bubbles that were really good for corporate profits," says Ben Inker, GMO's director of asset allocation. "Now things are unlikely to be anywhere near as good as people have gotten used to, because we're not going to have a bubble to help us."

Several other analysts who got it right in March say they aren't roaring bulls about the long-term outlook, although their views for the next 12 months are split.

In March, analysts who picked the bottom were a lonely lot. Panic was widespread, and previously bullish analysts were advising clients to stay out of the market. Yet rather than double down on their bearish take, some long-time market skeptics decided a bottom was near.

One who shifted gears, Michael Darda, chief economist at brokerage firm MKM Partners in Greenwich, Conn., is optimistic about stocks' prospects for next year. But he harbors doubts about stocks' ability to eke out gains past 2010.

On Feb. 24, after months of advising clients to invest defensively, Mr. Darda released a note entitled "Getting More Constructive," in which he said, "Several indicators that caused us to go bearish on equities last summer have recently improved."

Though he now suggests the market could be due for a pause after its breakneck rally, Mr. Darda says he believes the economic recovery will be more robust than most investors expect, driving the S&P 500 to 1200 or 1300 next year....MORE

Mr Gongloff ends the article with a great quote:

Like all of the analysts who got the March call right, Mr. Grandich warns that past performance is no guarantee of future results.

"Those of us that live by looking in a crystal ball," he says, "learn to eat a lot of broken glass."

Write to Mark Gongloff at

[three who called the stock-market bottom]