I have been biased to the sell side for a couple years figuring the economy was not what was being reported and things were in bad shape and the market would top. For the last year or 2 that's worked out fine. The last couple weeks/days things have gotten crazy, with wild stories of the immanent death of the financial system, everyone is worried about stock market plummeting (but we really aren't that far down), and this morning time came out with a cover saying we're in another Great Depression. I am starting to worry about my bias. Is it time, now that everyone expects the worst, to think that it is overblown. That the scary crap being shoveled around is just a facade? Are we going to see new highs by 2010? I'm become more and more concerned with my bear costume and it isn't even Halloween yet. JIM
You raise an interesting question. I am a contrarian by nature and that has served me well in the market. I think there is a chance the market might perform better than the economy but we are seeing things we have never seen before. The media is going on like people are not buying cars because of the lack of credit. That is ridiculous. People not buying cars had been a trend before the so-called credit crisis. People are not convinced the automakers have the right product when we are looking at 4 dollar gasoline. They say the consumer is 60 or 70 per cent of the economy. Well, the thing that is for certain, the consumer has sobered up, simply because the value of his home has probably dropped and he simply does not feel as rich. People do not feel confident about their employment situation and that is probably justified. Wisdom says the Democrats do better when the economy is bad, but focusing on universal health care is not the prescription for a electorate worried about jobs. It is hard for home prices to find a bottom when unemployment is rising. I cannot look to 2010, but it makes NO DIFFERENCE if Barry or the intemperate old geezer wins the election. Confidence in government and its so-called leaders will be on the wane. A time may come when I could get bullish. There will have to be some old fashioned capitulation and I have to believe that is a lot farther down than these levels. I would have to see employment in a different trend that it is now.
I've been bearish most of the last year and I think we're already probably 75% through this bear market. IMO it will be over by the end of the year. Sentiment on Main Street is finally getting bearish, the bullish pros are mostly too scared to buy, deep value players like Buffett are coming in, and all it would take is a huge washout week and it'll all be over. So yeah, any time a trend has become so clear that even Joe Public is aware of it, you should at the very least start contingency planning for how to spot an end to it all. Personally I will just wait until the market starts acting like a bull market, instead of rallying with a typical bear-market rally after bear-market rally. That means prices creeping up slowly but steadily despite negative sentiment (prices climbing the "wall of worry"), stocks opening down and then closing up in the last 2 hours, stocks not quite pulling back as much as you'd expect, stocks rallying in the face of bearish news etc. If you've been through one bull cycle then you know the score. Just wait for those signs before committing serious size to the long side. Until then, the only time to get long is during those high-fear VIX spikes, if you feel you can handle the risk and volatility.