just in in-tray
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My view (and the way I'm playing it) is that the big equities and US$ bear market, and commodities bull market, is on-going, and we have only finished the first leg. We now trade countertrend for a month or two.
In equities, I strongly believe this first leg down is complete. Given this downleg lasted 5 months, it would not be unusual for the countertrend to last a couple, and retrace somewhere between 1/3 to 2/3 of the fall.....just enough to suck people back in and convince them the bull is back, and that the worst is over. When the last dollar currently sitting on the sidelines is put back to work, it'll be time to short everything again.
I also believe that this leg down was mostly driven by credit concerns and "survival of the system". The next leg down will be driven by a focus on earnings (specifically, how much worse earnings will be than current consensus forecasts), and also by the multiple that people will be prepared to pay for those earnings.
As far as I can tell, there has not yet been a widespread focus on earnings, and on stress-testing earnings forecasts. While forecasts have been reduced, analysts are still in bull market mode as far as their forecasts are concerned.....and more importantly, as far as their assumptions regarding the multiples people will pay for the future earnings streams are concerned (PE's) - risk in the equity markets is still priced too low IMHO.
I see a similar trading pattern for $US - a couple of months of rally (notwithstanding the sentiment figures that Heinz mentioned earlier - i am a bit suspicious of the predictive power of these in times of massive dislocation) and, as a gross generalization, a couple of months of consolidation in the commodity indices.....again, just enough to convince people that the worm has turned.
Then we put all the trades that have worked so well for us over the past 6-12 months back on again.
Nothing scientific in all of this - just gut feeling and experience from years of watching how market (tend to) behave in various situations.
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