The collision of global markets and social mood

Tuesday, July 24, 2012

Rosenberg Lends A Hand

I tried to write about this yesterday, but I'm no match for David Rosenberg of Gluskin Sheff.  He echoes my sentiments much much better (emphasis mine).

David Rosenberg On A Modern Day Depression Vs Dow 20,000

DOW 20,000?
Well, this is perfect.
It is amazing how many pundits still believe in stocks for the long run. See The Long-Term Argument for Dow 20,000 on page 6 of the Sunday NYT Money & Business section. Shades of Jeremy Siegel.
So what are we left to conclude?
Last week, we saw the VIX index touch 15. The Investors' Intelligence survey showed there to still be two bulls for every bear in the realm of market newsletters. The put-call ratio had fallen through 1:1 after a 20% decline since early June. The bottom-up consensus of equity analysts see global profit growth of 13.5% for 2013, which is more than a double from the 6.3% projection for this year. The S&P 500 is currently trading much closer to the top end of its year-long 1.100-1,400 band than the low end. And now we see headlines of Dow 20,000 (whatever happened to the other 15,000 points Dr. Siegel promised 13 years ago)? Where exactly is there any sign of capitulation beyond, say, the mutual fund flows data which are illustrating even to the most casual observer that what we are witnessing on this front is little more than a demographic-driven rebalancing of the baby boomer asset mix as the investment lifecycle continues along a secular shift towards capital and cash-flow preservation themes.
The bottom line is that from the spring of 2009 to the spring of 2011, the stock mark doubled, and it doubled principally because of a wild short-covering rally in the financials which were priced for insolvency at the lows. It was a classic 1933-1936 bounce that never saw a new high and never foreshadowed better times ahead. The Great Depression ended nearly a decade later and the next secular bull market did not begin until 1954. And from what history teaches us, secular bear phases do not typically end with headlines about Dow 20,000 but rather with contrarian news like The Death of Equities on the front cover of BusinessWeek back in 1979 (or Awash in Oil on the front cover of the Economist back in 1999, when crude prices were turning in their secular lows).

Reading this I'm reminded of his flip flop a few months ago when he said he saw a light at the end of the tunnel.  I'm convinced he was being prodded by Gluskin Sheff to sound more cheery, because that's what makes customers feel good.  Word is he was dismissed from Merrill for being so bearish back in 2007-2008 when he correctly called the conditions that led to the crash.  Where's Merrill now?

Deep down, most investors don't want to make money; they want to feel good.  They want to own "cocktail" stocks like Apple and Facebook so they can talk about them at parties.

Talking about bearish indications is a turn off.  Negativity is a turn off.  What people want is to feel good.  Rats in captivity will choose artificial brain stimulation over food and sex until they die.  Investors will choose to be part of the herd until their accounts are gone.

One of my best secrets in advertising was that whenever we were recording voiceovers for television or radio, I would always have "the talent" smile the words.  I'd often tell them "once more with more smile."  It really warmed up they're performances, and more importantly, scored better in research.

The only reason I take the time to write each day before trading is for the focus.  I had a mentor who told me that notating his charts supercharged his trading.  I happened to start a blog.  The cool thing is that it's had the same effect.

Onto the market.  Until 1325.41 is broken, the opportunity still exists for 1380 to be exceeded.  Two major trend lines converge just below 1400.  I still feel it would be a massive selling opportunity.

There is a gap at 1362.66 that may want to be filled, but yesterday's rally felt weak to me.  I'm not smart enough to know whether there will be some backing and filling before the market attempts higher prices, or if it rolls over and plumbs new lows.  I just know that I'm playing for "bigger" numbers now, which means wider targets and larger levels.

Of all the currency crosses, the one that looks the most like the S&P over the last 2 months in AUDJPY.  So I'll be keeping an eye on it.  It too looks like it could test higher prices.

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