Wednesday, November 4, 2009

Former Bears' Take on the Market’s Future

From MoneyShow:

Are we headed for a major correction, or even worse: a resumption of the bear market?

What “the best” (former bears) are telling us now…

Many investors ask us who were among the “prominent bears” (or at least who went against the crowd as “boom-time skeptics”) before investors suffered the worst market sell off since 1974.

The answer is encouraging, because almost all of the market strategists and economists who correctly and repeatedly warned us to sell, or to get to a “maximum defensive position”—have turned bullish—in some cases within weeks of the March bottom. And we have the proof, because they all appeared on and at MoneyShow events.

Here are the "Paul Reveres" who rode for months and years warning of the bubble in formation—some were early of the top by more than a year. The exact timing of their buy signals may have pre-dated their videos or MoneyShow event presentations. An important advantage of the live events and videos: experts are given enough time with us—to make unusually detailed and candid recommendations.

Bernie Schaffer: Bearish as a technical trend follower long before the top, he warned us of the folly of too much derivatives use by hedge funds pilling into “crowded trades”, that would “under perform” at the worst time. Bernie told us we had “hit a bottom” (even if it’s a massive bear market rally, it should be played on the long side) at The Las Vegas MoneyShow in May of 2009. The 40-week moving average was Bernie’s key level, 943 on the S&P 500. Since we have broken up through that level, Bernie remains bullish, citing positive sentiment: “There are four distinct backdrops or themes that accompany the ascendancy of the market from a bear-market bottom to a bull-market top.” By Bernie’s analysis, the recent cluster of media skepticism can only be characterized as “disbelief.” Bernie concludes: ”Isn’t this the wall of worry that suggests further upside?”

Joe Battipaglia: Joe was among Wall Street’s highest profile bears, long before the crash. More impressively, Joe, like Gary Shilling, precisely called the US housing downturn as the catalyst for a massive bear market. Through 2008, Joe was 75% in cash. In January, Joe raised his cash allocation to 95%, into the first Quarter of 2009. At the same time, Joe recommended buying corporate, municipal, and high-yield bonds, which outperformed stock indexes through the summer. Watch Joe’s August interview: Stocks for Economic Darwinsim. Since April, Joe has held 55% equities. Joe still warns that this credit crisis will linger for “another two to three years minimum” (to work through the excesses). Any major government policy mistake will worsen Joe’s outlook (like socialized medicine, a more prolonged war in the middle east, and passage of any of the tariffs and regulations now being threatened in Washington). “Like the Japan experience, the winners could be bond holders who sit on 7% bond yields during a deflation that could take CPI down by 1-2% per year,” Joe says.


Is the market a long way from being overvalued, or good for another few years?
This is longer-term perspective of the S&P 500 by technical market expert Tom Aspray. The important lower "technical support" line is shown in blue.

Gary Shilling: Similar to Joe, Gary was prodded by TV interviewers for his insistence that a horrifically steep decline was imminent, as he pinpointed the overheated bubble in housing and the “sub-prime slime.” Gary advised buying long US Treasuries and zeros, which were the top-performing assets in 2008. Gary now sees a saw tooth pattern along a declining trend, with the US economy in the hands of the credit strapped “savings spree”-bound consumer. Look for “up and down GDP quarters.” (Eight of ten post WWII recessions saw at least one quarter of relapse.) Gary suggests there will not be a bottom until the middle of 2010, with election year political pressure colliding with a peak in unemployment—and yet another stimulus package. Click here to see Gary’s most recent videos and articles on Gary notes that Japan ran budget deficits that are multiples of the current US deficits, without resulting in higher inflation and interest rates (7-8% Deficits compared to their GDP)....MORE
Page 1 | Page 2 | Page 3 | Next

HT: The Big Picture