Well folks, this is certainly a possibility which merits thinking about. Let's take a peek at what has preceded the onset of this summer and consider the, dare we use the term, "derivative" prospects.
There has, as we have noted in a recent post, been a veritable gusher of happy talk in recent weeks. Indeed, if one could construct a graph tracing the volume and pandemicism (yes,we know there is no such word, but hell, this is our little corner and we figure we can make up any words we like), it would look kinda like the price of oil. This rising chorus of happy talk has also paralleled another, and more relevant, trend, of course: viz., the rise in equity prices itself.
Ah! Now we are talking turkey. There is, in the best of times and, yes, also in the worst of times (to quote Mr. Dickens)a well worn pattern of sentiment FOLLOWING PRICES. Not always, but usually, a very conclusive percentage of times. This is the reason that contrarians tend to do rather well in their investments, in contradistinction to the herd, which does rather poorly. (And let us note: the Wall Street herd, the herd of the "pros," does the worst of all, as the current financial crisis demonstrates, and not for the first time). Being of ornery disposition, we find ourselves, willy-nilly, comfortable in a contrarian stance.
In the present environment, we found our bearish selves (and we are NOT PERMA BEARS by any means) startled by two very recent developments. The first was when a recent stock market program began to show, every day, how close the market was to its all-time high. Our instantaneous and reflexive response, as soon as we saw the first use of the statistics, was "Uh, uh." We didn't even have to ask ourselves: when is the last time the general thrust of a stock market program was anything other than DEAD WRONG? Since we have not lived as long as the tortoise who shared St. Helena with Napoleon and who was still alive, and in the Bronx Zoo, when we were a kid, we couldn't remember that far back.
The second alarm bell went off when a guest (a so-called "expert" -- beware them experts like Caesar should have beware(d) the Ides of March) -- pronounced the following words with joyous enthusiasm: "This," he intoned excitedly, "is a great time to buy stocks." This joyous proclamation was the culmination of a season of good tidings, paralleling, perhaps not too remarkably, the sucker's rally in the stock market. Therefore, we concluded, it is time to head to the BOMB SHELTER, PRONTO.
We will freely own that we never fail to be astounded by the quantity of intellectual and analytical rubbish which is trotted out to justify, rationalize, and encourage a bullish market position each and every time the market is poised to crater. Today, the bulls yak on and on about this and that, ignoring the fact that the equity market DOES NOT EXIST IN A VACUUM. (Of course, Dr. Bernanke and his colleagues seem to operate on the selfsame belief). The truth is quite different, and while truth might not always prevail, REALITY DOES. This market is selling at 23x lagging earnings, as such are stated; this is a multiple we have only seen in late 1999, early 2000. Oil prices have doubled in 12 months, house prices are collapsing, debt is crushing the masses (the banks too), credit is almost as hard to find as an honest man. (Diogenes, you may recall, was running around his town, the ancient Greek city of Syracuse, in Sicily, at high noon, naked, holding a lantern: people stopped the philosopher and asked him what he was doing. His famous reply was: "I am looking for an honest man.")And we are supposed to be bullish.
We think we'll take a pass. As we see it, the market has had a very impressive sucker's rally, "so much the better to eat you dear." With the maximum amount of investor money held in the market, and the max of the skeptical money sucked back in, the market will, more likely than not spring the familiar BEAR TRAP. Unless we miss our guess, it's gonna hurt, real bad.
