MB:
Like many, I'm in a quandary at this stage of the developing bear market, hence, I invite you and others to comment on the following.
Yes, many stocks have taken a pounding (especially the tech stocks) and yes, it has been delightfully profitable to have been bearishly deployed over the last several months, but many bears, myself included, have or are retreating to the sidelines, in expectation of a consequential rally (based primarily on "technical considerations").
Reflecting on where we are, it strikes me that this may not be intelligent. The horrific inventories continue to build, addressed markets become ever more sodden and consumer economic activity has entered free-fall mode. In a nutshell, I can see no respite from a continuation of a "bad news" environment and many tech stocks are still priced for perfection. It sure isn't going to be easy to move these sodden stocks based on fundamentals and the lies of Wall Street are (finally) starting to be discounted by even Joe Six-Pack.
While the resolve of many investors has not been broken, I must admit to being surprised at the accelerating recognition in many, that this thing is getting dangerous and that it might make a bunch of sense to head for the sidelines. As an interesting aside, I know many investors who have actually been leaning towards getting out but have been talked out of doing so by their financial advisors (a group I despise because so few of them do any homework). The psychology of this situation fascinates me and what I am beginning to think might occur is that the inevitable continuation of the current deluge of bad news may crack the resolve of investors considerably sooner than we might think. I may be wrong, but I am surprised (and delighted) at the fact that some investors at least are becoming aware that time is running out for this market. If this awareness picks up some impetus, this market could be shaken down much more rapidly than most of us think possible.
So now let's factor in everybody's reason for remaining involved,..... the Fed. Of course (until last week, at least) it was an accepted certainty that the Fed would rescue the market if problems showed up. But last week, that certainty was shattered when the Fed attempted to throw a party but few stayed for more than a quick drink. I suspect that more than a few investors derived a new perception from this event,.... the idea that the Fed's power to influence the market has been emasculated by excessive use of its arsenal.
Still staying with the fed for a moment, I also think the Fed has precious little remaining room to make cuts without a swift and ugly response from the other (bond and currency) pits that will tear the guts out of the stock markets in any event. Surely this is not an insight that is the exclusive domain of a few.
Summing up, yes we have all accepted the notion that "it doesn't pay to fight the Fed" and yes, it is a given that the Fed will cut rates again in the very near term, but it is also clear that the Fed's impact on the markets is diminished (to be expected when ever-increasing liquidity must be added to the system, just to stand still). That last rate cut was shocking,...... to everyone. Yet its impact on the stock markets petered out in a measly two days, which is even more shocking. And it ought to be obvious that any further rate cuts will have dire implications for the U.S. bond market and the U.S. dollar.
When most market participants share a similar view, it is usually wrong. Most folks expect a powerful rally. But when one goes looking for a basis on which a decent rally could sustain itself, one comes up with dust.
Given the above, I am less and less worried about the impact of the Fed and more inclined to orient my trading activities to accommodate a continuing, accelerating market implosion. Not a complete commitment, but for sure more than just wetting the toenails from time to time. What am I missing here?
Best, Earlie |
