Last week’s rally ran into brick wall yesterday as worry about the upcoming earnings season surfaced.
While the major indexes closed to the downside, a recovery rally during the last couple of hours reduced the damage considerably.
The current question is as to whether the “earnings bar” has been set low enough. In other words, worse reports than the already low expectations could bring this current bear market rebound to an end in a hurry. Slightly better results, along with improved future guidance, will undoubtedly support the bulls and may provide more fuel to the upside based on the (erroneous) view that the economy has turned the corner and happy days are here again.
While I don’t always agree with Bill Fleckenstein’s view, he had this to say in “A bear rally in bull’s clothing?”
There is also another possible reason for the celebration: the copious amounts of money being created from thin air by the world’s central banks (not least of which being the early stages of quantitative easing, the conversion of government debt into money). Money printing plus imagination are potent forces that can’t solve our problems but can affect the stock market in such a way as to make it appear that the worst has passed.
It must be remembered that some of the best rallies occur in bear markets. For instance, in the first half of 1930, the market jumped 40% — twice what Bubblevision defines as a bull market — and it certainly didn’t end very well. (Part of the reason for that big rally was a belief that the recession, which became the Great Depression, was already over.)
I have touched on the fact before that not only sudden but also the most violent rallies occur in bear markets. Personally, until proven wrong, I can’t see that reckless monetary expansion over 30 years along with the destruction of assets and employment of historic proportions will be resolved with government stimulation packages and an ephemeral bear market.
Comments 4
Ulli,
Nobody knows if the bar is set low enough. Good grief the cheerleaders on the financial T.V. channels have been interviewing guests ever since early 2008 right square in the middle of the “Crash of 2008” who thought we were at a bottom then and stateted that it was a good buying opportunity. They were correct as it was a great buying opportunity to buy bear funds, but nothing long. These so called money manglers and so called anal-ist just never learn and pray on the general investor public assuming they are stupid enough to buy what they are selling as they always have been over many years. There is a fool born every minute, actually maybe two fools every minute as the population increases.
B.W.
Ulli
In your 4/7/09 column, you said, “Personally, until proven wrong, I can’t see that reckless monetary expansion over 30 years along with the destruction of assets and employment of historic proportions will be resolved with government stimulation packages and an ephemeral bear market.”
But that’s what we’re saddled with, “…government stimulation packages…” So if that is not going to end “…an ephemeral bear market,” then what should we look for to end it?
Hi Ulli,
Looks like the market is going lower, but the question is on all our minds is how much lower and nobody knows. Earnings are sick and that doesn’t bode well for the market although I realize that the market looks six months ahead. Right now the six months ahead doesn’t look much better either. I will watch the moving avg. line of the market, not the price, and when it turns up I will be ready to go long, but right now my bear fund RYURX is still the right place to be since the end of 2007 as far as I am concerned.
Anon,
All bear markets will eventually turn into bull markets; it’s just a matter of time.
In the meantime, while the bear moves along, there will be investment opportunities, and we may even see a domestic buy signal. My point is that you need to be prepared that trends can change in a hurry, which makes it necessary to work with sell stops no matter what you invest in.
Ulli…