Dear Bull,

On July 14th, 2010 I wrote a “letter” to short sellers warning them to “be very, very careful here into year end” and that “we are set up for a big rally over the next 5 1/2 months.” I cited a calming down in European credit stress, a better than feared earnings season at the time, the Nov election possibilities, an underinvested buyside and lastly and the most important, a Fed that would remain extraordinarily easy. I thought though at the time that 2011 would bring new worries but QE2 gave the market fresh legs to where we stand today.

I am now putting out a warning to you, the long only, mostly long PM. The road is about to get rougher as QE2 is near its end at the same time US economic growth is moderating and central banks around the world continue to raise rates (the BoE is going to be forced to soon).

Also, Europe is reaching a tipping point now with Greece and investor sentiment remains very bullish or at least not bearish at all. Do you know anyone that is set up for a market drop? I don’t. The correction in commodities over the past week is the first shaking of the tree that should not be ignored and will be the precursor to a painful 10%+ correction in stocks over the next few months. Both rallied hand in hand since late August and thus won’t be separated in market action.

Category: Markets, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

18 Responses to “Dear Bull . . .”

  1. MikeNYC says:

    So….if PMs and stocks are due, does that make cash the safe place to go for now? In particular, the USD?

  2. Nuggz says:

    The US Fed tightening?

    Highly unlikely.

    Remember, there are millions of ARMs out there in American Asphaltistan and the last thing the administration needs is yet another foreclosure crises. Furthermore, people should not get to cozy with with the recent drop in oil prices. 4 dollars/gal doesn’t seem to send up red flags, so therefore, 5 dollars/gal should be right around the corner.

  3. DW auto says:

    Greece will not be allowed to fail ala Lehman’s lesson. Central banks will always come to the rescue to prevent needless deflation, QE, while at the same time instilling doubt and caution to prevent overspeculation in commodities that restrict growth.

  4. KJ Foehr says:

    “Do you know anyone that is set up for a market drop? I don’t.”

    Yes, me.

    But I am not as confident of an economic downturn as I was a few weeks ago. Why not? Because,

    1. It is likely that a flight to safety will keep interest rates from rising significantly.
    2. Further decreases in commodity prices should provide increased purchasing power to consumers inthe months ahead.
    3. The job gains in recent months have provided some momentum to the economy that will continue until and unless we see job losses again.

    These, and probably several other reasons that I am not aware of, may conflate to prevent a serious slowdown in economic growth.

    Beyond that, as we know, the economy and the stock market are two different things…

  5. emrah says:

    Great call..both for equities, commodities and risk currencies…

  6. dead hobo says:

    Mr. Boockvar

    How ’bout that copper? Back to free-fall. Silver is looking a little sickly, again, too. Oil speculators might just be knee deep in Santorum by the end of the day. Looks like this might be a hell of a day.

  7. Chief Tomahawk says:

    Okay by me for oil to take a fall. I have my short list of desired travel locales and am looking at a late July-September timeframe. If oil breaks below $80, given the recent price surge has changed many a folks’ mind to stay home, I foresee airfare price cuts to attract business.

  8. dead hobo says:

    Chief Tomahawk Says:
    May 11th, 2011 at 11:18 am

    I foresee airfare price cuts to attract business.

    reply:
    ————
    Maybe; maybe not. Hedgers such as airlines actually buy futures contracts to take delivery several months out. Depending on how they hedged their contract and IF they hedged the higher prices, they might have to charge passengers for some very expensive jet fuel contracted for while oil was higher. Gasoline will fall in price faster than asphalt shingles or jet fuel, or things made out of plastic.

  9. louiswi says:

    Jeez,

    I crawl out of bed, turn on the Big Picture and what do I see? A freakin’ Wall of Worry!!!

  10. SivBum says:

    I have been selling on recent rallies and down to 20% in equity and a few stocks being acquired for cash. The ~10% YTD dow/S&P gain is good enuff for me.

  11. Nuggz says:

    Oh, for the dollar debasement crowd.

    “US is selling and the world is buying: US exports a record $172 billion in March thanks to a weaker dollar.”

    Just sayin’

  12. winwin says:

    why a 10% and not a 20% correction?

  13. SivBum says:

    SLV took out last Thursday’s crash low … PM and crude dragging down the rest of the market, thanks to etfs and index funds.

  14. cognos says:

    Except Bockvar has been clearly BEARISH for most or all the last 6+ months.

  15. macrotrader603 says:

    With all due respect to Mr. Boockvar…predictions are futile. Noone has a crystal ball.

    That being said, reading the trending directions of most commodity markets and many leading stock sectors, we are headed lower.

    The only thing that matters is watching how the markets trade, all else is conversation.

  16. mac says:

    “Do you know anyone who is set up for a market drop, I don’t”

    ISI’s Institutional Equity Managers Survey is down to 67% invested from 73%. This the lowest it has been since the bottom in March 09.

  17. kaleberg says:

    Until unemployment goes down or wages go up but ideally both, there will be limited investment opportunities. The choice will be to lend one’s money to the government and effectively pay them for the service of taking it, or put it into the market. Unless there are some actual productive uses for capital, I figure the stock market is a good bet.

  18. Carl58 says:

    I’m 1/3 in stocks, the rest in diversified bonds…

    I don’t think a major drop is not imminent, but I do think we are re-tracing the “triple dip” of the 1970s — where 4/1962 = 10/1994, and 4/1972 = today. This bear market is moving along a little faster than in the 70s, so we are still have a ways to go to the top of this bear-market rally… if we follow the pattern of the mid-70s we will drop lower than the 2009 low sometime in 2013, which will be the buying opportunity of this generation…