;-), thanks, good article mish. Myopia
Kenneth L. Fisher, 04.01.02, 12:00 AM ET
Shortsightedness rules when folks believe the winter uptick is more than a
sucker rally. The market is no higher than in January-but sentiment sure is
higher.
So? Have I been wrong? Do we have a bull market? The S&P climbed 7% between Feb.
22 and Mar. 8. I think this is just another sucker rally in a long bear market. I may be
wrong. Yet the logical conclusion to draw from this winter's rally is that almost
everyone is myopic now, unable to see anything except what stares them in the face.
One of evolutionary psychology's great lessons is that people are naturally
shortsighted.
Immediate events drive us emotionally in all our market conclusions and actions, far more than any
intermediate or long-term force. Why do folks believe stocks will rise now? Largely because
they've been rising. If you want to avoid getting hurt in the next big market move-up or down- learn to
look beyond today's news.
Just lately, after we've been through Enronmania, all news is seen as good. Sentiment has soared.
while that may seem to be a bullish signal, it really is bearish. The more we feel good about the U.S.
economy, the more risk stocks hold.
The myopia extends far afield of the market. We have one of America's most popular
Presidents ever, according to the opinion polls. Why? I don't know. Aside from having
been there on Sept. 11 and having later made only a few grave mistakes, like hiking
tariffs on steel, George W. Bush has done little. Hence, there's little to make us think that
he is wonderful. Most Americans do, though.
As I write in early March, the news is that February unemployment fell. Stocks
responded by soaring. The news was good enough for most investors. They're myopic.
Federal Reserve Chairman Alan Greenspan on Mar. 7 publicly declared an economic
recovery was under way. Almost everyone feels that, if Greenspan is happy, they
should be, too. What he says must be correct and good enough for them. Myopic.
In all my studies of financial history, I'm unaware of a new bull market that began with
Wall Street strategists and press commentators expecting rising prices that then
materialized as expected. Historically, the reverse takes place: For many months prices
climb the proverbial "wall of worry" amid bad news, but pull back on any good news.
Not now.
I've never seen a new bull market where so many normal investors, ones who rarely
make right market calls, loudly proclaim they know this is real and, what's more, knew it
all along. Myopic.
In my lifetime only one recession, the 1990 downturn, didn't do a double dip. The normal
recessionary path is to fall a few quarters under heavy inventory liquidation, pick up for
a quarter or two, then relapse. Take the 1969-70 recession. Two quarters of mild
economic decline were largely made up for by two quarters of advance, only to relapse
violently in late 1970.
Any economic bottom in 2001 was invisible. If real, it would be our first in which a
recession ended before the bear market did. Normally stocks lead the economy, they do
not lag it.
The latest market run-up, starting Feb. 22, does not break the bear market pattern. Since
the down market started in March 2000, there have been eight other upward moves of
7.5% or more lasting 11 trading days or more. This is number nine. The market is no
higher than in December or January. But sentiment sure is higher. Talk about a bearish
indicator.
The most bullish thing in this uptick is that for the first time in many months foreign
markets have joined in fully. As I detailed in my July 23, 2001 column, after last spring's
sucker rally, you can't have a real U.S. bull market without major overseas participation.
And thus this up move has a greater possibility than usual of lasting.
Yes, there is always a remote possibility of the market's doing something truly unique.
Sometimes, obviously very rarely, that will happen. If such is the case now, the result is
that any predictions going forward will be tougher to make. But what's more likely, with
all these optimists around, is that the rally is temporary.
I detailed for you in my (Dec. 10, 2001) column my "Three Strikes and I'm In" rule: The
S&P must climb past three barriers for me to decide I was wrong and dive headfirst into
stocks. Two (1100 and 1130) have already been passed. The third, as I wrote then:
"Moving above 1200 for several more weeks." From here 1200 seems close, yet it
actually is quite distant. My best guess is that the market won't get past the 1200 mark
soon. Lots of indigestion lies ahead before we reach that level.
But I may be wrong. If the S&P heads above 1200 and can sustain that altitude for two
weeks-and unless the Martians have landed-you will know I'm fully invested. Until then,
don't be myopic. |
