Big And Ugly

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Big and ugly is the only way to describe yesterday’s market fall in which the widely followed S&P; 500 index fell 6.1% to its lowest level in five years.

This bear has more muscle and momentum than many expected, which is reflected by the simple fact that the S&P; has now lost almost 32% since our domestic sell signal was generated effective 6/23/08. That’s in only four months!

Despite clear evidence of a bear market, some simply can’t make a 100% commitment to the fact that staying on the sidelines is a wise thing to do. I was reminded of that as I read an article by Merrill’s strategist Richard Bernstein titled “New bull market nowhere in sight.”

It’s not a worthwhile read but the bottom-line is that he talks out of both sides of his mouth. According to him, there is no bull market in sight for years yet he favors having portfolio exposure to stocks of 50%.

Huh? If that is confusing to you, it makes perfect sense to me. If he would promote a 100% cash position, he’d be digging his own grave. What then would Merrill’s commissioned army of thousands of hungry sales people sell? This way, they still have a reason to call you and try to sell you stocks that are heading south or structure worthless fully diversified portfolios.

I can see why this man is Merrill’s strategist…

Here’s another tidbit of an embarrassing PR disaster that happened yesterday and did not influence the markets positively. At a congressional hearing, the top brass of the nation’s bond-rating companies struggled to explain away e-mails that said the agencies would give anything a decent rating if the price was right. One Standard & Poor’s analyst told a colleague the company would rate a deal even if it had been “structured by cows.”

This underscores the absolute uselessness of ratings companies as Mish over at Global EconomicTrends has been mentioning for over a year.

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