Lots of folks think this rally is the turning point. Here is the bear side of the argument.
Paul
prudentbear.com
St Malachy Everything is in place for a massive collapse. Shorts have covered and are waiting for higher prices to sell, earnings continue to deteriorate yet earnings multiples continue to assume a massive recovery at “any moment” and have yet to come down in order to discount a slower growth post-bubble world, the last linch pin of the economy (the consumer) is coming under increasing pressure (see ACF’s and PVN’s comments this week), the public is massively in debt and many are losing their jobs, the housing bubble has burst, terrorist attacks have turned psychology negative and ended our productivity miracle (assuming there ever even was one)... need I go on? A $60 to $100 bil stimulus package and another 250 bps of interest rate cuts aren’t going to make all that go away (let’s just set aside the fact that even if those measures were successful interest rates would skyrocket in the long end and stock prices would still fall because interest rates were so high and even a V-shaped recovery in earnings through inflation wouldn’t be enough to put a dent in these silly multiples stocks are trading at, which would be even sillier at higher interest rates.) Those are just the hard facts. It’s a no-win scenario. It’s not fun, and it’s not a jolly picture but those are the facts. And facts are what you have to deal with in the investment business. The only question that remains is where this short squeeze ends and the coming collapse begins. Maybe it did today, but we won’t know till it does. Unfortunately, that confirmation isn’t going to come until we break massively to the downside. This weekend, we’ll get a better look at what the Congress is passing in the form of a stimulus package. Also, there continues to be the danger of some sort of terrorist act suddenly turning psychology and breaking off this rally in the blink of an eye. Next week is an expiration week as well as a big week for earnings announcements and more importantly, Q4 guidance. With all these things going on at the same time, it’s likely going to be a wild week. I tend to think this rally ended yesterday in after hours with the panic gap higher in GLOBEX that is still the high tick to date, but that’s just a hunch. Like I said, we won’t know till we see a massive selloff, but of course if you’re long ahead of that there’s little you can do about it. Still, just as we saw this week, that doesn’t mean we can’t push higher early next week. |
