Comments on: Bear fund managers warn against short sales http://livingoffdividends.com/2009/03/08/bear-fund-managers-warn-against-short-sales/ Join me on my journey to achieve financial independence through dividends, passive income and investments Tue, 13 Dec 2011 07:31:37 -0800 http://wordpress.org/?v=2.8.1 hourly 1 By: Weekly Dividend Investing Roundup - March 14, 2009 | The Dividend Guy Blog http://livingoffdividends.com/2009/03/08/bear-fund-managers-warn-against-short-sales/comment-page-1/#comment-38426 Weekly Dividend Investing Roundup - March 14, 2009 | The Dividend Guy Blog Sat, 14 Mar 2009 11:00:58 +0000 http://livingoffdividends.com/?p=993#comment-38426 [...] Watch out for short sales [...] [...] Watch out for short sales [...]

]]> By: Brian http://livingoffdividends.com/2009/03/08/bear-fund-managers-warn-against-short-sales/comment-page-1/#comment-37439 Brian Mon, 09 Mar 2009 21:01:17 +0000 http://livingoffdividends.com/?p=993#comment-37439 Steve Leuthold is one of the top three market forecasters, as far as I am concerned. He, Bill Fleckenstein, and also Doug Kass, three big time market bears the past 3-4 years, have all reversed their positions and are either getting neutral (Fleckestein) or going long (Kass). The talk about DOW 5000 or DOW 4000, is really off the charts. Nouriel Roubini is pushing his luck and will kill his hard won success. Sure, it is possible if the worst case scenario happens (the Fed and Treasury stop defending the banks). But it is not a good idea to bet on outliers (1 in 10,000 probabilities). The market is beginning to look frothy in the negative direction. People are now blindly chasing the market lower as they did the NASDAQ higher in 1999. I see all these rationalizations about SP earings of 25 or 30 and a PE multiple of 7 (for a SP500 index of 250), which are both worst case scenarios). But you can't use trough earnings to figure valuation (use 5 or 10 year smoothed earnings) and can't use a multiple established during a period of high inflation (1974). Momentum cuts both ways and the results can be disastrous for anyone who gets caught up in it. I agree with you on the oil / energy / commodoties call. That is where I am positioned. I am much less excited by the prospects for gold. It just gave us a double top (right at $1000) and the technical indicators are poor. Also, the fundamentals are poor. Deflation is a negative story for gold because its alternative, the dollar, strengthens with deflation. The financial panic is over, I believe. The market has adjusted to the negative news cycle as can be seen by VIX, which no longer approaches 90 even as the market slowly declines. Gold may be a good long term call (5-10 years), because the only way out of this depression is through weakening the dollar and expanding money supply. At some point, the credit contraction will stop when all credit assets are written down as far as they can be and the market begins bidding those credits higher. Once the contraction stops, all the money and near-money infused into the economy will be the basis for a monetary expansion and the dollar will weaken. But I think it can be 2-3 years before the contraction stops, it is so well entrenched. Until then, gold will move sideways, though no chance of going back to $250. It would take a long period of dollar strength to accomplish that, and I think the dollar will intentionally be weakened as soon as possible, to encourage risk and investment (as opposed to parking money in Treasuries and other riskless assets). Steve Leuthold is one of the top three market forecasters, as far as I am concerned. He, Bill Fleckenstein, and also Doug Kass, three big time market bears the past 3-4 years, have all reversed their positions and are either getting neutral (Fleckestein) or going long (Kass).

The talk about DOW 5000 or DOW 4000, is really off the charts. Nouriel Roubini is pushing his luck and will kill his hard won success. Sure, it is possible if the worst case scenario happens (the Fed and Treasury stop defending the banks). But it is not a good idea to bet on outliers (1 in 10,000 probabilities). The market is beginning to look frothy in the negative direction. People are now blindly chasing the market lower as they did the NASDAQ higher in 1999. I see all these rationalizations about SP earings of 25 or 30 and a PE multiple of 7 (for a SP500 index of 250), which are both worst case scenarios). But you can’t use trough earnings to figure valuation (use 5 or 10 year smoothed earnings) and can’t use a multiple established during a period of high inflation (1974).

Momentum cuts both ways and the results can be disastrous for anyone who gets caught up in it.

I agree with you on the oil / energy / commodoties call. That is where I am positioned. I am much less excited by the prospects for gold. It just gave us a double top (right at $1000) and the technical indicators are poor. Also, the fundamentals are poor. Deflation is a negative story for gold because its alternative, the dollar, strengthens with deflation. The financial panic is over, I believe. The market has adjusted to the negative news cycle as can be seen by VIX, which no longer approaches 90 even as the market slowly declines.

Gold may be a good long term call (5-10 years), because the only way out of this depression is through weakening the dollar and expanding money supply. At some point, the credit contraction will stop when all credit assets are written down as far as they can be and the market begins bidding those credits higher. Once the contraction stops, all the money and near-money infused into the economy will be the basis for a monetary expansion and the dollar will weaken.

But I think it can be 2-3 years before the contraction stops, it is so well entrenched. Until then, gold will move sideways, though no chance of going back to $250. It would take a long period of dollar strength to accomplish that, and I think the dollar will intentionally be weakened as soon as possible, to encourage risk and investment (as opposed to parking money in Treasuries and other riskless assets).

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