well, that is hardly a balanced list--i mean, the bear list, most of which i agree with, is more than 3 times as long as the bull list. but it's pretty much impossible for one person to present both sides of the equation. like trying to have an honest arm wrestle match between your left and right hand.
i wish i could add to the bullish list, but being a bear myself i can't make a very good contribution. i would think probably the biggest bullish factor is the declining dollar. the earning streams from stocks are real streams (unlike nominal bonds), so if the dollar falls enough the nominal earnings will go much higher, resulting in higher (or at least not lower) nominal stock prices, even if the real values go down. cf. Zimbabwe, one of the most economically chaotic places on the planet ("As companies' operations remain depressed, government's domestic debt has increased to $1,6 quadrillion as at March 8 from $60 billion on February 1" allafrica.com ) with hyperinflation, where US$100 costs 9 (edit: 18) pounds of the local currency. would you want to be short this stock index?
so, even if one accepts a bearish outlook for real returns, short strategies relying on nominal losses may not work well. having said that, bearish strategies on various CDS indices over the past year have worked quite well, despite recent setbacks. these strategies are dependent on the market's continuing to believe that losses will be realized, instead of nationalized. if Bernanke is successful in nationalizing the bad assets and engineers hyperinflation, we might as well elect Mugabe as our new president. short strategies other than short nominal bonds will likely fail and the best we can hope for is to protect the real value of our wealth.
i think short equity strategies need to assume that Bernanke will fail to induce inflation, instead being overrun by deflation which will cause nominal prices to fall. |
