The Battle of Bull vs Bear
Good Thursday morning.
We woke up in the states to see Futures under pressure, but off their worst levels of the morning. Following a day of 1-2% losses in Asia, European bourses gave up less than 1%, losing 50-75bps.
US stocks are looking to open lower, as the bears make another attempt at some downward pressure. It has thus far been a losing battle. These days, opening indications and actual closing prices are two very different animals.
In the face of massive liquidity of QE2, there remains a firm bid beneath this market. So far, losses have been modest to miniscule, with selling pressure well contained. M&A, share buybacks, anything but disappointing earnings are an excuse to put on the rally caps. Even dips are an excuse to buy. (We are running 53% cash on specifc name selling, not overall market calls).
The bears are bloody but unbowed — they know a correction is imminent. But the bulls have heard this line for nigh on two years, and yet still the market still powers higher. The Dow, S&P and Nasdaq are all at multi-year highs. There is a different between being early — a matter of days or weeks — and wrong. So far, the bears have been wrong.
Eventually, the grizzlies must be fed. They have their champions, including various Fed Hawks, who are terrified of an inflationary spiral. Lacker, Plosser and Fisher may be mortal enemies of price instability, but they are friends of Yogi and Boo-Boo and Baloo, well known amongst ursines for their opposition to easy money. And easy money is a bull’s best friend.
Even the most ardent bull knows that this too, will pass. The bears will have their day, before their next bout of hibernation.
The 64 trillion question: When?
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February 10th, 2011 at 7:22 am
BR pondered: The 64 trillion question: When? reply:
———— My operating plan: I’m in over 90% and expect to see
overall rising markets until 6/30, more or less. Then QE2 ends and
the real economy has to take over. Employment and spending should
help support the overall level at that time since it will have also
contributed to the rise. Also, the liquidity injected from QE2 will
still be sloshing around, providing continued support. Flows from
bonds will also assist rising equities. Around this time, THEN you
should see the correction … perhaps 20% … at least 10%. People
buying now should be insulated if they miss the dip and hold
throughout since markets will rise at least 10% by 6/30. The
markets will rise at a historically normal pace after that. The
next crash will be caused by the US debt crisis. The world will
force fiscal competence on the US and it will be costly.
Guesstimated for this are from 12/21/2012 (I’m serious) to maybe 4
years out.
February 10th, 2011 at 7:25 am
A Bambara proverb about patience: Don ka ja, a sebeli te.
Translation – Though the day be far away it cannot not arrive. (The Bambara have no problem with double negatives.)
February 10th, 2011 at 8:01 am
When?
The show starts today! I closed all my long positions 2 days ago.
February 10th, 2011 at 8:03 am
Last time I wrote here about levels achieved that would invalidate a correction, I failed to follow my own advice & got slammed. Will try to learn from that mistake.
Going forward, all major indices appear to be saying the same thing…correction cannot be far off. However, I see futures open as a bit of a psych move right now. I’m not be convinced that the market has reached short-term exhaustion until S&P 500 peaks back up above 1,324.5, DJIA back above 12,304 which I expect to occur over the next week.
Soon but not yet.
February 10th, 2011 at 8:19 am
mark Says:
A Bambara proverb…
——————–
And as Shakespeare says in Hamlet:
If it be now, ’tis not to come; if it be not to come, it will be now; if it be not now, yet it will come—the
readiness is all.
February 10th, 2011 at 8:27 am
“The 64 trillion question: When?”
And as much to the point, for how long will the teddybears picnic last before the bearfood is taken back to the kitchen?
There seems to be an assumption in many corners that when it comes to choosing between high inflation and high unemployment eventually the decision will be to have high (likely VERY high) unemployment.
I think that assumption is wrong, and it has been arrived at because the hawks make a louder squawking than the doves and the mass of silent moderates in the middle who just want some job security back.
February 10th, 2011 at 8:30 am
Interesting commentary on a seekingalpha post:
“It is funny that bears like Jeremy Grantham have given up any chance of correction, while bulls like Barry Ritholtz is calling for a 5-8% one. ”
I reduced my equity positions last week. I’m not a trader, just someone who moves his equity exposure (mostly broad indexes) up and down in “chunks” in response to apparent conditions (…and Barry’s calls). Conditions look significantly overbought and I can’t be comfortable buying now. Seems like as a percentage call – buying now is a low percentage move. Also seems like with so much anticipation, it’s just not happening – sort of a like a “watchpot that never boils”…
February 10th, 2011 at 8:33 am
And easy money is a bull’s best friend.
no doubt
February 10th, 2011 at 9:03 am
LH @8:27a .. “high (likely VERY high) unemployment … assumption is wrong” .. you seem to believe that muscle trumps money – your assumption is wrong .. not in the short term – much pain must be felt 1st … Egypt thank you for the timely show
February 10th, 2011 at 9:14 am
It’s a tough fire fight right now, Iv’e been dodging
bullets for the entire week, my success has ben that I haven’t lost
any money and yesterday, I avoided disaster on an intuitive
impulse. However, after I read your Hang Seng comment last night, I
took a shot at around 22:30 near the highs, on a thin and
tranparently manipulative rally only to wake up this morning to a
pleasant surprise. I covered some of my shorts due to the fact that
we are for the moment bouncing off a 5 day trendline channel
support…. However, it was probably the BOE negligence that helped
my balance sheet…. Whewwww…. Shssss….! Best regards,
Econolicious
February 10th, 2011 at 9:42 am
Don’t really know when there will be a market correction, however, what you are seeing in CSCO you will see in Apple this year.
February 10th, 2011 at 9:45 am
Buy the dip. The same dynamics, QE2, tax cuts, slow recovery in place since November still apply.
February 10th, 2011 at 10:21 am
Just got stopped out on the balance of my shorts… DW: I’m throwing in my short towel for he moment and heading out with the pups to the Atlantic for a weekend sail…..
Best regards,
Econolicious
February 10th, 2011 at 10:25 am
This just proves that markets will do what they will do. This is a computeer based, low volume “bull” market but as a very wise old trader once remarked “don’t fight the Fed, don’t fight the tape”. As long as the Fed puts an artificial floor under equities acting as a whore for Wall Street, either be long or be gone but don’t be short.
February 10th, 2011 at 10:29 am
“there remains a firm bid beneath this market. ” – Really, no sh*t….. 10am, you can check your watch.
10-15% used to be considered a “dip”, then the “Greenspan put” made it 5-8% dip, the Bernanke’s “accommodating policy” – 2-5%.
Now, with Brian Sack and his 3 NYU undergrads “helpers” in charge of $600B, a 0.5% is enough of a dip to buy.
February 10th, 2011 at 10:38 am
I sense a kind of grudging bullishness breaking out very recently that’s makeing me uneasy. I see it on SeekingAlpha and here. It’s a perceptable capitulation of bears and many who are convinced that QEx will hold up the market up indefinitely so that it can’t dip more than a touch. Maybe that’s right, I don’t know.
I just start getting more edgy when the crowd seems to be moving in one direction more succinctly.
February 10th, 2011 at 10:40 am
Can someone help me understand how QE2 leads to a bid for stocks? Maybe it’s obvious, but I don’t understand the transmission mechanism. If the Fed buys bonds from, say, Goldman, do they re-invest the proceeds into equities? Why? Or, is there no mechanism, simply a sort of vague “put?” There seems to be a clear link, but what is it?
February 10th, 2011 at 10:54 am
QEx won’t be used indefinitely, only until housing and employment definitively turn up and make a contribution. Inflation in food and energy not significant compared to these. Japan made the mistake of repeatedly taking foot off gas and allowing markets to fall back. Doubt is necessary to discourage excessive speculation.
February 10th, 2011 at 11:02 am
Cheney’s “friend” steps down… that should help the bull case.
http://content.usatoday.com/communities/ondeadline/post/2011/02/egypts-supreme-council-of-armed-forces-meeting-on-crisis/1
February 10th, 2011 at 11:30 am
QE2 ends in June. This year more than ever…”sell in May and go away” sounds like the way to go.
February 10th, 2011 at 11:56 am
SP will double top. That’s when.
Next serious pullback when the RUT double tops. For now, long RUT.
February 10th, 2011 at 12:32 pm
cgercke,
I’ve been wondering the same thing. How does that 600 billion have such a big impact on a 30 trillion or so equity market, plus just about every commodity under the sun. I’m not saying it hasn’t. I just don’t get it.
I think it’s a bad idea to use monatarist theory as a tool to improve the economy. Even the monatarists don’t understand the consequences of their actions.
February 10th, 2011 at 12:35 pm
“The 64 trillion question: When”
I am not confident that the Fed will raise rates or cease QEx.
We appear to be wholly within an era that any financial pain, economic stagnation or decline is completely unpalatable and/or just plain disastrous. Is it possible that rate and monetary normalization, as we understand it, would cause a systemic collapse, either directly or indirectly—say as the consequence of sovereign insolvency? It would seem that a scenario of rate increases and monetary extraction has been performed, at a very high level, and the potential outcomes are not pretty. I recall that the last time the Fed took the punch bowl away and raised rates to 5% the outcome was severe. No doubt that we live in interesting times.
February 10th, 2011 at 1:09 pm
So much mental time spent on so little.
February 10th, 2011 at 1:38 pm
All I ask is that we get a 3% correction sometime in my lifetime.
Starting to wonder if it’ll ever happen.
February 10th, 2011 at 3:35 pm
[...] opening indications and actual closing prices are two very different animals,” Barry Ritholtz noted earlier at the Big Picture. He has a precise summation of how the bull vs bear battle has gone [...]
February 10th, 2011 at 6:01 pm
[...] My takeaway: • My Market view is here [...]
February 10th, 2011 at 8:54 pm
When?
It is the Minsky moment they say. It’s in your horizon but arrives suddenly in your face.
February 11th, 2011 at 6:23 am
[...] yesterday’s early AM comments (The Battle of Bull vs Bear), I noted that “opening indications and actual closing prices are two very different [...]