Monday, March 19, 2012

A Comment on Current Market Sentiment

CNBC today Featured Nassim Taleb who said he has "no choice but to own stocks" to "preserve my financial situation." He is trying to hedge against hyperinflation. Funny, that this article comes out AFTER the markets have already risen 100% from their March 2009 lows. I will bet Mr. Taleb wasn't saying he has "no choice but to own stocks" after the market had fallen 58% from their October 2007 highs on March 6, 2009. But now that the market has risen substantially, he is bullish. Of course, March 2009 is exactly the time that everybody who is bullish now should have been bullish and "worried about hyperinflation", but instead they were worried about deflation and a depression. I agree with Mr. Taleb in his worry about the financial future and his support for Ron Paul, as he is one of the ONLY politicians that has the slightest understanding of what is really going on, however I believe Nassim is very wrong about his assessment of the financial assets to own. I see deflation is a much bigger threat than hyperinflation, but, naturally, hyperinflation is on everyone's minds now. By the time the market makes its final low for this bear market, everyone will see Deflation as the major threat. That of course will be the time to be worried about "hyperinflation", which may or may not occur. But that mindset will do investors much more good at the bottom than now, as financial assets will be severely undervalued by then, probably more undervalued than they were in 1932. Not to mention some famous bears have also capitulated as well. That includes Nouriel Roubini, Zero Hedge, and David Rosenberg. Many sentiment measures are at more extreme levels than the all-time high in 2007 yet the market is not at a new all-time high. With the U.S. Dollar set to commence a major bull market and deflation straight ahead, the sentiment picture now is the mirror opposite of March 2009, which makes the conditions ripe for a major top.

9 comments:

  1. Good post Chris. Hyperinflationists are calling for the dollar crash for many years now and every year they keep telling us it will happen by the end of the next year. In the mean time here in in Europe I see car sales and prices crash, housing stagnating and heading south, credit contracting, governments on the verge of defaulting, people scrambling for money to pay bills, margins in companies getting squeezed, ... That smells more like deflation to me. Our political class in Belgium and Europe think they solved the problem with LTRO. What a joke! The debt crisis was papered over with some more debt. The European banking system is completely broke and I urge every EU citizen to listen carefully what our Argentinian friends have to say about their banks in 2001.

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  2. Hi Frank-

    Thanks for the comment. I agree, LTRO will not work and deflation will win out. I expect most banks in the western world to collapse, and the European Union to Break up entirely by the bottom of this Bear Market.

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  3. Thank you Chris for your efforts to post. Everybody needs to understand the workings of our money system. Unless we do so we will never understand this crisis and its consequences. At the moment there is a tremendous complacency in the markets. Everybody feels like the debt problems have been resolved ... It makes me deeply afraid. I really fear when (not if) the next EU debt crisis erupts it's going to gain momentum and turn into something really ugly very fast. At the moment my eyes and ears are all focused on Bob Hoye and Tim Wood for any clues. These are the only two guys I know that are truly on top of the market. In the mean time I try to warn as many friends and family (although few listen) about the gravity of the debt problem in the EU. Let's hope we are wrong Chris but things look really scary ...

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  4. Frank-

    Kudos for going against the crowd and warning people of the coming collapse and going against the crowd sentiment. Undoubtedly, the herd is bullish. And the ones who are not bullish are forecasting hyperinflation, when the threat of a deflationary collapse is much, much bigger. It know it is hard to get them to listen, but we as people who understand the situation have a duty in my opinion to warn others and advise maximum financial safety for everybody, not just Europeans (as you know the world's markets move in tandem these days) in this very precarious financial and economic envioronment. Please see my previous posts on ways to get safe. Thanks again for your comment, and best of luck.

    Cheers.

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  5. can you provide a link to the articles that prove Zero Hedge has capitulated as a bear?

    Have they said that they are bulls buying stocks verbatim?

    Same with Rosenberg, please? When and where did he say that he was a bull?


    I shall be waiting for links to substantiate your claims regarding ZeroHedge and Rosenberg

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  6. Hi babooly1-

    I have no link to an article that proves ZeroHedge has turned bullish, just read it somewhere. As for Rosenberg: http://www.cnbc.com//id/42782844

    That was three trading days before the May 2011 high in which the SPX declined over 21% to the October 2011 low.

    Now he is "Bearish and Sticking to it": http://blogs.wsj.com/marketbeat/2012/02/09/david-rosenberg-bearish-and-sticking-to-it/


    Must have taken a 20%+ decline to get him bearish again.

    There are other bears who have capitulated since then as well. By the end of a bear market rally, the majority of market participants are convinced that its a new bull market. Needless to say, the Bear Market Rally is accomplishing this goal.

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  7. It is better to confirm and reconfirm before saying things, IMHO

    Zerohedge has been a bear and is still a bear, but they have time and time again identified potential rally possibilities and this is one one them and they actually called it many weeks ago but still a macro bear

    That said, they have always been PM bull and still are

    as for Rosenberg, he has always been suspicious and still is, but was one of the first who advocated dividend paying quality stocks and still is

    As I said, IMHO, it is always better to be sure before labelling others

    and, as for sentiment, it is not a timing tool, it is most he-said-she-said and at best it is a condition

    Price is the only thing that matters

    The rest are just opinions, but, before saying anything about someone else's opinion, one may make sure that it can be proved

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  8. Appreciate your comment. Sentiment can be a very powerful tool, if it is from a reliable source and interpreted correctly. A one sided opinion among the majority of investors on a market is a sign of an impending reversal. Correct, sentiment is a condition, but when sentiment gets to extreme levels (i.e. at the top in bonds in December 2008 there were 99% of traders bullish via the Daily Sentiment Index)it is a major contrary indicator.

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