8/16/2009 3:45:00 PM
Unemployment figures are improving. The housing market is showing signs of life. The stimulus package seems to be working. And the Fed maintains that the downturn appears to have hit bottom. So what’s not to like? Could it actually be that: The stock market will continue to advance? 401(k)’s will get healthy? Credit markets will loosen up? Companies will expand and hire? Single-family home valuations will climb back “above water”? And home owners will be able to borrow again and spend, spend, spend?
Some people are so certain about the "recovery scenario" that they that think injecting massive amounts of liquidity into the economy will result in hyper-inflation. This argument usually includes a projection for gold prices of $2500/oz or more. Our view is that the gathering forces of deflation are so strong that even if Fed Chair Bernanke had an army of helicopters, all of them dropping money, it wouldn’t be enough to stem the tide. This is bearish for equity valuations.
BULLISH NO MORE:
“Given that stocks remain in the largest-degree bear market in nearly 300 years, it is not a good idea to bet inordinately on the upside…The prudent thing to do is return to a bearish stance now that prices have reached the first Fibonacci retracement level…”
“The DJIA has fulfilled our initial bear-market rally forecast from April by pushing above 9,000. The S&P remains shy of the bottom of its range of 1000-1100, which it should achieve before the advance from March is complete. Keep in mind that the current rise is just the set up for the strongest part of the still-unfolding Cycle-degree decline that started in 2007. Stocks are entering the latter stages of their Primary-degree bear market rally.”
“… any trips to new high ground should be final thrusts not the start of anything major. The next important move should be a decline that brings back at least a taste of the fear that ruled last fall and winter.”