Send In The Bears?

On the drive back from Phoenix yesterday I heard some very bearish sentiment on Fast Money from most of the crew and Dennis Gartman. On Tuesday afternoon, Joellyn and I were out Christmas shopping and I heard Jeff Macke (spelling?) make a comment to the effect he sold a lot of stock as a result of the first bit of Fed news.

Gartman on Wednesday said the he thinks the rest of the year will be down and that he has lost all faith in Bernanke and thinks he should go.

I have been clear for many months that I thought that this market cycle was close to ending and that in fact a bear market has started.

My opinion of course should have no bearing on you and your portfolio. The context here is if you think a bear market or big decline is coming…

I have outlined the general tact I have taken, and why, in past posts. As a matter or normal cyclicality, volatility increases at the end. For anyone interested in trying to avoid some portion of down a lot it makes sense to reduce volatility a little if the chance of it being late cycle is high.

In looking at the chart there are of course different conclusions that can be drawn. I believe the green line will turn out to be the most important but whether that is true or not I do not believe anything changed this week with the Fed news. Bear markets turn slowly, as I have been saying, they do not start with one news item like the Fed did X. The Fed could make things worse however.

Financials have been in trouble for months now and as I have been saying I expect more to come. A stock market is very unlikely to do well without its largest sector. This entire event from the first yield curve inversion through to the present day has been very textbook. Here I am talking about the effect of the crisis as opposed to the details that created the crisis.

The news of the week is simply a part of the equation that either the Fed is behind the curve or there is no real action to solve this other than time. We know that if nothing else time will solve it, we don’t know how much time (at least I don’t) it will take.

The path I chose (and wrote about) was simple and relied on this time not being different. Inverted yield curve equals trouble for financials and probably for the rest of the market. Expecting trouble meant trying to avoid the full impact of a normal decline.

Looking ahead there is no way to know (we may look back and point to a certain date) whether in fact a bear market has started or whether any action taken to cushion the blow will work if it is a bear but bear markets do come along every now and then and the way they start is pretty similar to what is going on now. I may be adding 1+1 and getting eleven or I may be right but I can build a good case personally that says some defense here makes sense. So far this path has worked very well and we’ll see about the future.

24 Comments

  1. I really appreciate your analysies as it helps form the background out of which I make my decisions. We are fifty per cent cash and the remainder in short term bonds.

    As an aside, I know you are sometimes concerned about your spelling and I was amazed this morning when you sallied forth with “cyclicality” without even a hiccup. The problem must be related to the small buttons on your blackberry.

    Lots of snow up here & it sure looks like we will have a long winter – much like my expectations for the bear market.

    Pedro

    Reply
  2. thanks.

    i don’t follow you about the word cyclicality.

    MS Word knows that spelling.

    Reply
  3. I notice that the president/CEO/whatever of BAC came out yesterday and said “I don’t know how bad this is gonna get, but our next quarter will blow.”

    Interesting, considering Buffer bought into BAC. He had to have met with these guys and attempted to understand how bad it would get for them. And that had to have figured into why he bought BAC instead of, say, Citi.

    So you start to wonder if the banks really don’t know how bad it’s going to get. Which means they can’t even describe it to someone like Buffet.

    Reply
  4. Stephen,

    In general terms there has been a desire to buy in because a lot of the stocks are down 20-25% with the thinking being oh, they are down a lot they must be a good buy..

    Not sure if it is a desire to bottom tick them or what but FWIW i think it is still too early.

    Reply
  5. If you accept the pushing on a string analogy for why the Fed can not stop a recession, aren’t all the central bankers coordinating with the FED to push on the string together to solve the problem?

    It seems to me the real problem is excess debt or debt of insolvent individuals or companies that will not be paid back.

    I am not criticizing the central bankers. There is only so much they can do. The business cycle and bear markets are real and we will just have to work through it.

    I prefer to look at it as a wonderful buying opportunity sometime in 2008 (hopefully not 2009).

    Reply
  6. What is the best way to buy short term government bonds in Swiss, Canada, Australia, euro denominated bonds?

    Reply
  7. I don’t know.

    The minimum trade size per schwab is $100,000. Easy to do for a bunch of account but maybe not for the typical do-it-yourselfer.

    Having opened an account at a foreign bank (in Iceland) I can tell you that route takes a long time.

    Reply
  8. MS Word also mis-spelled “tack” as tact in your post.

    Reply
  9. anon at 8:40
    you can buy currencyshare etfs for each of those currencies that, in turn, buy short term paper and pay interest rates out to the etf holders. the minimum “investment” for these are much lower. you could buy one share of fxe, for example, for around $146 (plus any commissions) this morning.

    Reply
  10. Bernanke should go? He’s just started. Is there any precedent for a Fed Chair being fired, as opposed to not renewed at the end of his term? I really don’t know. If there’s not it’s probably unlikely that he’d be fired and we should plan accordingly. Again, the guy’s just started his term.

    Reply
  11. “What is the best way to buy short term government bonds in Swiss, Canada, Australia, euro denominated bonds?”

    Anon 8:40 must have been reading this article: (let the panic begin)

    http://tinyurl.com/2uxrxz

    Roger.
    I was wondering if that “text book” that you got at the Superbowl of Indexing is available for anyone to order a copy for themselves?

    Reply
  12. “In case you’re wondering, Schultz is up 21.42% over the past 12 months according to the Hulbert Financial Digest, vs. 7.51% for the dividend-reinvested Dow Jones Wilshire 5000. Over the past five years, Schultz is up a remarkable 34.38% annualized vs. 12.85% annualized for the DJW.”

    I would love the above returns. Not a bad track record. So yes I did read the article at

    http://tinyurl.com/2uxrxz

    If you want to panic go ahead. I just plan on diversifying.

    Reply
  13. I have no opinion on Gartman’s comment, I think the only way there is a change is with a resignation. I will say that while BenB may turn out to do a bad job it is a little soon for me to know he’s bad.

    JackS, no idea. I emailed the person who invited me to ask. If I get a reply I will let you know

    Reply
  14. Thanks Roger.

    Reply
  15. My point was that I used to think you could’nt spell because you would occasionally get a word or two wrong, but I obviously was wrong; that’s what I realized this morning when I saw that the word “cyclicality” was spelled right. I offer you my apologies for that and being such an ass.

    Keep up the good work.

    Pedro

    Reply
  16. JackS there will be at least some info available but they are not sure of the timing.

    you can go to the following website. If the post anything at some point that is where it will be, probably under resources.

    https://indexbusinessassociation.org

    Reply
  17. Thanks for the link Roger.

    Reply
  18. The inflation data today proves that Ben B had a clue or two about what he was doing regarding the interest rates. Everyone is a back seat driver here, but Jim Cramer has taken it to a new level.

    Pedro: With goodwill, I must point out the irony of your admonishing Roger for his alleged misspelling of a word in a post of yours that contains this word: “analysies”

    Reply
  19. This comment has been removed by a blog administrator.

    Reply
  20. Great post. I’ve pretty much been seeing things the same way. And sentiment seems to be getting more and more bearish.

    Reply
  21. I’d still be careful with individual country ETFs, looking closely at what specific diversification you’re obtaining for the country-specific risk taken. For smaller economies, looking at the index composition is critical.

    Malaysia, India (via iPath ETN) and a few others offer some significant market co-movement diversification. Much of Europe, on the other hand, really doesn’t merit country-specific risk due to overwhelming U.S. market correlation.

    Reply
  22. Short term government bonds of foreign countries —take a look at the i-shares currency etfs. These are “short term bonds”, ie currencies of that country.

    Reply
  23. now a days most very liquid short term paper has some viable futures exchange product electronically accessible

    u can get in with a global account like Interactive Brokers

    dollar needs constant life-support now a days and the fiat chickens are coming to roost…

    AMERO is still the awful boondoggle question

    what are these crooks planning???

    Reply

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Send In The Bears?

On the drive back from Phoenix yesterday I heard some very bearish sentiment on Fast Money from most of the crew and Dennis Gartman. On Tuesday afternoon, Joellyn and I were out Christmas shopping and I heard Jeff Macke (spelling?) make a comment to the effect he sold a lot of stock as a result of the first bit of Fed news.

Gartman on Wednesday said the he thinks the rest of the year will be down and that he has lost all faith in Bernanke and thinks he should go.

I have been clear for many months that I thought that this market cycle was close to ending and that in fact a bear market has started.

My opinion of course should have no bearing on you and your portfolio. The context here is if you think a bear market or big decline is coming…

I have outlined the general tact I have taken, and why, in past posts. As a matter or normal cyclicality, volatility increases at the end. For anyone interested in trying to avoid some portion of down a lot it makes sense to reduce volatility a little if the chance of it being late cycle is high.

In looking at the chart there are of course different conclusions that can be drawn. I believe the green line will turn out to be the most important but whether that is true or not I do not believe anything changed this week with the Fed news. Bear markets turn slowly, as I have been saying, they do not start with one news item like the Fed did X. The Fed could make things worse however.

Financials have been in trouble for months now and as I have been saying I expect more to come. A stock market is very unlikely to do well without its largest sector. This entire event from the first yield curve inversion through to the present day has been very textbook. Here I am talking about the effect of the crisis as opposed to the details that created the crisis.

The news of the week is simply a part of the equation that either the Fed is behind the curve or there is no real action to solve this other than time. We know that if nothing else time will solve it, we don’t know how much time (at least I don’t) it will take.

The path I chose (and wrote about) was simple and relied on this time not being different. Inverted yield curve equals trouble for financials and probably for the rest of the market. Expecting trouble meant trying to avoid the full impact of a normal decline.

Looking ahead there is no way to know (we may look back and point to a certain date) whether in fact a bear market has started or whether any action taken to cushion the blow will work if it is a bear but bear markets do come along every now and then and the way they start is pretty similar to what is going on now. I may be adding 1+1 and getting eleven or I may be right but I can build a good case personally that says some defense here makes sense. So far this path has worked very well and we’ll see about the future.

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