Nattering Nabobs of Negativism
07-Mar-03 00:03 ET
[BRIEFING.COM - Robert Walberg] [BRIEFING.COM - Robert Walberg] They're at it again. No matter where you turn in the news media, be it television, magazines or newspapers, the headlines are almost universally depressing. Here are some examples from yesterday: Threat of War, High Fuel Prices Hobble Economy (WSJ), Medicare Proposal May Spur Insolvency (WSJ), Radioactive Material is Stolen From Halliburton (WSJ), Israeli Troops Strike Gaza Strip Following Suicide Bombing (NYT), U.S. in a Tough Position As Isolation Increases (Washington Post), Bankruptcy Boom (CNNMoney online), Jobless Claims at '03 High (CBS Marketwatch), Who Will Join Conseco, UAL In Bankruptcy? (Forbes.com), US Retail Gasoline Price to Hit Record High (Reuters), Turmoil May Rain on Disney's Parade (WSJ). You get the idea.
Heck, even our leisure activities are potentially threatening if you believe this headline from the Wall Street Journal - Health Concern Bubbles Up for Hot-Tub Soakers. Is it any wonder that investors are depressed? It's bad enough to have to deal with the ongoing questions surrounding the Iraqi crisis, but to have the sanctuary of the hot-tub taken away during these turbulent times is just too much to take. What's a poor trader to do? Sit on the sidelines and wait for all this to blow over that's what.
Fortunately, this too will pass. With headlines and sentiment so bearish, there's really only way for the news cycle and the market mood to turn - and that's up. It may take a quick and decisive victory in Iraq before the market's spirits lift, and the news cycle turns more positive, but that day is coming and probably sooner rather than later. When it does, investors will perk up and money will start to flow off the sidelines and back into stocks.
So you can either follow the crowd and sell/stay sidelined, or you can begin to do some nibbling in anticipation of a relief rally. Briefing.com is reminded of what Rousseau once said, "follow the course opposite to custom, and you will almost always do well." Adopting such a contrarian philosophy at this juncture might just prove very profitable.
By slowly moving into stocks now you might not catch the bottom. In fact, until the Iraqi crisis is resolved the major indices are likely to continue drifting lower. However, the key to successful investing is to buy when the potential for reward outweighs the risks, and to sell when the risks outweigh the potential rewards. Briefing.com contends that if you look past the negativity of today's headlines, and look at what's likely to transpire in the weeks and months to come, that the market is more apt to move materially higher from current levels than significantly lower. Listed below are just some of the reasons why now might just be a good time to start putting some of that sidelined cash back to work:
Cash, cash, cash. Institutional investors have been stock piling cash for months. But they get paid to invest, not sit in cash. So when these big investors finally get some clarity on the Iraqi front, they will move aggressively back into equities. When this process begins to unfold fear will no longer cause inaction but action, as the prevailing fear will be missing out on the next big up move.
Oil prices, now near twelve year highs, are expected to come tumbling down if US succeeds in ousting Saddam and securing Iraqi and neighboring oil fields from severe damage. Drop in crude will relieve cost burden on companies, lower prices at the pump and generally bolster sentiment.
Economy may be a bit sluggish these days, but should get a boost from another wave of tax cuts in the months to come. Not sure what elements of Bush plan will survive but given that we're headed into an election season it's safe to assume that tax cuts and spending increases are on the way. Current Administration would make Keynes proud.
As noted in Thursday's Big Picture Stock Brief, valuations might not be historically cheap but given the low rate, low inflation environment they're more than fair. With the earnings yield well above the 10-year note yield, stocks not bonds likely to be the investment of choice once money gets put back to work.
Finally, as we noted above, the news cycle is about as bearish as it gets. As such, short-sellers have been busy. However, as the news cycle improves - and it has to improve from here doesn't it - remaining shorts will be compelled to cover, thereby adding fuel to the eventual rally.
Briefing.com is not arguing that the indices are about to embark on a long, powerful bull market run. What we are suggesting is that the indices are deeply oversold, sentiment is extremely bearish, money is piling up on the sidelines and the news cycle is excessively bearish. As the news cycle turns and sentiment becomes more positive, the indices will stage a meaningful, tradeable rally. War on Iraq is likely to be the catalyst for that change, and by most accounts we won't have to wait much longer for military action to commence. If it's true that the early bird gets the worm, then now might be a good time for investors to tune out the nattering nabobs of negativism and start to (gradually) rebuild their equity positions.
Robert Walberg , Briefing.com |
