Monday, July 26, 2010

Put Your Rally Caps Back On: FIve Reasons the Long-Term Bull Market Rally Will Resume

"Many are wondering whether the bull market is back on or this is just a bear market rally. I believe we could be at another quality buying opportunity, not nearly the extreme of 2009, but a great chance to pick up stocks on a 10% discount. Below are my five reasons for being bullish," continue reading here.

13 Comments:

At 7/27/2010 9:34 AM, Blogger juandos said...

Well if the bull market is going to happen won't this 'lack of confidence' by the consumer have to change?

From CNBC: Consumer Confidence Falls, Lowest Since February

 
At 7/27/2010 11:04 AM, Blogger morganovich said...

the last several weeks have been a classic "melt up".

with the RUT up over 9% month to date and sentiment still almost universally bearish, you have a lot of shorts that are hurting and a lot of guys on the sidelines fearful of missing the rally. the only thing that is always true in the stock market is that just when everyone agrees about what is about to happen, they will immediately be wrong. it's not surprising to see such a strong bounce from such bearish sentiment.

you can get some surprisingly large and lengthy moves in a melt up. this 1113 to 1130 band is extremely pivotal for the SPX. not sure we have the chops here for a surge back to 1200, but a convincing break of 1130 would make me think we were going to try.

 
At 7/27/2010 11:40 AM, Blogger Benjamin said...

Well, I think the Fed has to do a lot more.

Reagan ran deficits up to 6 percent of GDP, and hustled Volcker out the back door to bring in the more-accommodative Greenspan. It worked.

Obama is running deficits at 10 percent of GDP, though slated to go down to under 6 percent by 2012--but we have a very tight Fed now. Very tight. The economy is suffocating, and the Fed won't move to quantitative easing as it should.

It may not work.

 
At 7/27/2010 12:00 PM, Blogger morganovich said...

very tight fed?

that's a ludicrous claim. interest rates are essentially zero. there is NO looser than that.

QE has never even been used before this downturn. again, that's as loose as it gets.

what you are really seeing is that no amount of accomodative monetary policy can reduce overcapcity and that when consumers are this deep in debt, they take extra money and spend it to pay down borrowings which is another way of saying that stimulus is being spent on consumption that already occurred.

the fact that a yield curve this steep is coincident with M3 shrinkage tells you that the monetary policies are just pushing on a string.

it is loose money that got us here. it cannot get us out. it is not (nor should it be) the fed's job to be the buyer of last resort for assets.

i have no idea how you came to be such a bubble baby benny, but when this is all said and done, greenspan will be reviled as the banker who destroyed what volcker built with his "greenspan put" of concatenated bubbles driven by his asymmetric ignorance - "i can't spot a bubble but i can spot a bust".

 
At 7/27/2010 12:23 PM, Blogger Benjamin said...

Morganovich-

You might find the blog Money Illusion, written by a very conservative monetarist, to be educational. Univ Chicago-Phd. type Scott Sumner.

Low interest rates are a result of dead inflation, and that is a result of tight money. You may be aware that MZM (St. Louis definiton of money supply) is contracting as we speak.

Inflation has been mild to dead for decades now. So what loose money?

We are entering a deflationary epoch now. Unless checked, it can become self-generating.

If you are in gold, I would get out pronto. Could be a very long, multi-decade ride down.

I recommend hard assets in the Far East. UVAN is a palm oil company listed on the Thai SET. Worth a look.

Good luck.

 
At 7/27/2010 12:44 PM, Blogger morganovich said...

benny-

you have the causality backwards. the demand for money is low despite loose monetary policies because we are in too much debt and have overcapacity.

rates are as low as they can go and the yield curve is steep, yet money supply is contracting. the issue is that there are limits to monetary policy. it cannot solve the current situation. loose money is the wrong policy for overcapacity. if you use loose money to alleviate debt, you get inflation at some point, otherwise, how are you reducing real debt loads?

interest rates are low due to massive fed intervention. rates for corporate borrowing are not all that low. mortgages are only cheap because freddy and fannie are literally buying 90% of the market. that is manipulation, not equilibrium.

inflation has been anything but dead. we just defined it out of existence when we changed the CPI calculation. (another greenspan atrocity) read john william's site "shadowstats" on this topic.

using the pre greenspan methodology, CPI reached +9% in 2008 and is over 4% now. our real interest rates may well be negative (as is true in much of the world right now) but it still won;t drive growth. the lever just isn't attached to anything.

asset inflation has been outlandish for decades. the commodities index went from 192 in 2002 to a peak of 615 in 2008. look at housing over the same period. gold. oil. equities. bonds. hell, last year we saw the first ever simultaneous 10%+ rally in gold, stocks, and bonds. that is never supposed to happen. only massive overliquidity can cause it.

calling 60 MPH 10MPH won't make the crash any less jarring.

 
At 7/27/2010 12:59 PM, Blogger Benjamin said...

Morgan-
Well, I guess we disagree, but I think you make pood point and I enjoy your commentary.

The CPI and PPI are going down, and you can say it is rigged...I actually used to be a policy-wonk CPI guy, and I know all about overindexing and the rest. Truth is, inflation is so low it can't really be measured accurately, and we could parse hairs for eternity. Ther are near philosophical disputes about inflation and product switching or improvements, housing costs, etc.

I will say this:
Houses, stocks, oil, phone service, commercial, industrial and retail rents, clothes, cars, electronics, food --everything is just getting cheaper. If you stauffed cash in a mattress two-three years ago, you are ahead.

The BLS says unit labor costs are going down, and I can tell you all commercial rents are going down. I just mentioned 70 percent of business costs.

I see deflation ahead. Invest accordingly.

Good luck.

 
At 7/27/2010 1:17 PM, Blogger morganovich said...

benny-

you leave out the key issue with CPI which is geometric weighting. such a policy will generate a decline in reported CPI even if the basket components just fluctuate randomly.

CPI is nothing like too low to measure. it's just being measured badly.

money is a loose as loose gets, but it just doesn't matter right now. debt bubbles do not reflate like equity bubbles.

this is the great flaw in the greenspan worldview. eventually you back yourself into this corner. decades of negative real interest rates cause a monstrous debt bubble which then takes a very long time to get out from under. we seem to be avoiding some of the mistakes made int he 30's, but the underlying difficulty of emerging from a debt bubble is still present and it's going to mean many years of below trend growth.

pile loads of government intervention and regulatory uncertainty on top of this, and you get a really grim investment environment, just as hoover and much more so FDR created in the 30's which freezes and crowds out the private sector. (TVA anyone?)

I recommend amity schlae's excellent book on the topic "the forgotten man".

 
At 7/27/2010 1:32 PM, Blogger VangelV said...

Reagan ran deficits up to 6 percent of GDP, and hustled Volcker out the back door to bring in the more-accommodative Greenspan. It worked.

Your timing is off. Reagan did not push Volker aside until 1987. By that time the recovery had already taken place, in part thanks to a reduction in some taxes that stimulated some economic activity.

Obama is running deficits at 10 percent of GDP, though slated to go down to under 6 percent by 2012--but we have a very tight Fed now. Very tight. The economy is suffocating, and the Fed won't move to quantitative easing as it should.

The Fed is not tight. It has been buying bad mortgage paper from the banks and has interest rates at zero. If it does more, you could see confidence in the USD collapse and have a bout of hyperinflation that would destroy the financial system sooner rather than later.

I still maintain that what needs to be done is to cut spending, cut taxes and allow the badly run companies to go out of business. While the contraction would be deep recover would come swiftly once all the sewage is flushed out of the real economy.

 
At 7/28/2010 7:53 AM, Blogger juandos said...

"and allow the badly run companies to go out of business"...

Hmmm, one wonders if there's going to be a 'new' definition for those 'badly run companies'?

William Black: "Unlimited Taxpayer Bailout" of FDIC Coming; FDIC Shell Game Hides the Bailout

 
At 7/28/2010 8:26 AM, Blogger VangelV said...

Hmmm, one wonders if there's going to be a 'new' definition for those 'badly run companies'?

As you know, we don't need a new definition because the market is sufficient to provide us with the information. In the commentary that you cited Mish makes some excellent points about the unintended effects of the FDIC moral hazard.

 
At 7/28/2010 8:48 AM, Blogger juandos said...

"...the unintended effects of the FDIC moral hazard"...

I sometimes wonder about the 'unintended' part...

None the less those 'unintended effects & moral hazards' might could be applied to the CRA and GSEs in the housing market also...

 
At 7/28/2010 10:33 PM, Blogger VangelV said...

None the less those 'unintended effects & moral hazards' might could be applied to the CRA and GSEs in the housing market also...

Yes they can. Congress, the Fed, and the oval office created a big mess and are refusing to take responsibility for it.

 

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