Opinion

Bear Notes

By on • ( 2 Comments )

Big market turning points are wicked. Bottoms are events, tops are processes.

If you’d try to buy the S&P in January and February of 2009 you got spanked hard as the S&P still dropped from 942 to 666. And many of you will remember this time. Was it the right thing to do ultimately? Were technicals suggestive of a massive bounce coming?  The answers to all these questions were yes, but buyers still got spanked hard until markets finally bottomed at the infamous 666:

Likewise buyers could do no wrong in 1999/2000 as prices just kept levitating:

The answer: Momentum. Momentum is not a reflection of ultimate truth, fundamentals or reality, it is a reflection of current prices and direction which can be completely irrespective of future reality, fundamentals or truth as the buyers in 2000 for example ultimately found out the hard way. None of the prices were sustainable nor were they real:

Yet momentum is a force of the moment and as such it must be respected, but it also provides opportunity and frankly this is the phase we are in now from my perspective.

Investors are bullish like never before:

They’re piling in passive ETFs at high valuations:

And there is no fear or concern as corrections have seized to be a part of normal market price discovery:

And stocks only go up:

The end result: Everyone is long stocks and bears are non existent:

Yet, as mentioned at the outset: Momentum is not a reflection of ultimate truth, fundamentals or reality, it is a reflection of current prices and direction which can be completely irrespective of future reality, fundamentals or truth.

Consider: The current drivers of asset prices, unprecedented artificial liquidity and expected tax cuts will no longer be ahead of us.

They’ll be behind us. They’ll be fully priced in and soon markets have to contend with pricing in reality:

But it’s a lot more than that.

Recently I had a chance to sit down with the folks from RealVision TV and talk about some of the larger market concerns. They’ve done a great job of gathering a number of folks in addition to myself and collect various perspectives and produced the following piece below, “The Edge of the Cliff”.

If you haven’t watched this I highly recommend you do as the data points I summarized above may give useful context to what I and others are discussing below:

The main message: Don’t take this environment for granted. This is not a new normal. This is the extreme.

Be ready.

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2 replies »

  1. Of course you’re going to be proven correct. I’m old enough to have seen these non-stop melt-ups in ’87, ’99. I’m also old enough to remember the late 70s when people would laugh at you if you recommended stocks as they were so discredited as an asset class. People HATED stocks, which is why you get extremely LOW valuations. Compare those years with the abiding love of stocks now with EXTREMELY HIGH valuations especially if you pay attention to GAAP and as-reported earnings. It’s a bubble! HeLLLOOOOO! 🙂

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  2. Best 30 minutes spent this year! This video is worth watching several times to really let the content sink in. The 1987 crash was not fun. Stock prices on the Quotron were 30 minutes delayed, everybody was in a panic, and by the Tuesday after the crash the market makers were not even answering the phones to take orders.

    This video is telling us all to think ahead, take cash off the table and maybe just sit on it until things feel better someday. Take our profits now and avoid the problems that will surely happen in a deep correction.

    If what Jim Rogers said is true. . . . . this will be the worst correction of our lifetime, then having lots of cash and avoiding the near term risks is a great strategy. Nobody knows when it will start, but getting out of the way is really smart.

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