Wednesday Nov 30, 2011
Everyone from Jim Cramer (We are at Defcon 3, you cannot imagine how awful) to John Murphy and Art Hill at stockcharts.com is bearish. Few are bullish other than corporate insiders who have ramped up buying again,and The Market Perspective. Bob Prechter has a lengthy free report out warning of impending doom, again.
I have been reading The Greater Journey by David McCullough. It is the story of Americans in Paris from 1830 to 1890 or so. I recommend it not only for a fresh look at French history but as a sort of look across the Pond at how emotions can violently change, near ripping a formerly taciturn country to shreds. To wit-
By late 1869 the Suez Canal was completed, America was linked by the Transcontinental Railroad and Morse's telegraph began making the world a true Global Village in terms of immediate communication. Indeed things had changed.
Yet after watching the US slaughter hundreds of thousands of its own citizens in the Civil War, France then declared war on Prussia, what is now Germany. Needless to say, that was a big mistake, Paris was eventually under siege with people reduced to eating cats, dogs, and yes rats. Only months before art students had flocked to Parisian studios. Once the city fell to the Germans, thankfully the Germans left Paris alone. But it was not over. The French then turned on themselves with the Commune shooting at the French establishment. It was a repeat of the French Revolution of 100 years earlier with innocents marched to their death. Finally the original government gained control of the City again.
I will leave history to others but my conclusion is that hat the mood changed, violently.
The mood has changed once a month as I have noted since August in the financial markets. Each downturn has the bears believing it is 2008 all over again.
Financial markets are rather like an hour glass. There is only so much sand (money) that can move from one end to the other. Once the sand has run its course, the only alternative is for it to reverse, someone has to turn the hourglass on end! This is now slowly happening. With a majority of advisors bearish, Fidelity is tuning into what it perceives investors want, no matter how irrational that might be.
Click on Fidelity. Scroll down and note at the bottom right
New! Fixed Income Center
This would be thigh slapping hilarious if Fidelity were not serious. My first foray into the prediction business was in 1984. I had left the brokerage business ten years earlier ( at the bottom, whoops). But by 1984 I brought a fresh perspective. So it was easy to look at the charts and sense that long term rates had topped, oil prices were coming down, and we were on the cusp of a giant bond rally. Few to no one believed me, yet one could purchase thirty year treasuries, non callable no less, for 12%, and prices rallied!
Now thirty years later as five year yields have fallen from double digit to less than 1%, Fidelity announces a fixed income center. Bill Gross is again endorsing bonds, just at TLT is at its recent highs for the year. Indeed, the increase in bond rates for Italy and Portugal is not surprising. What is really unusual about a country paying six percent for borrowing money? The answer is, nothing. Yet years of low rates have convinced writers that this is somehow an unusual event.
The markets are not falling any longer because Mr. Market realizes the same thing, Once the majority have taken a defensive position, it will not be rewarded. The hourglass is being turned the other way.
Consider - last Friday after an initial rally, the stock market turned down again. All is lost, the PM of Italy literally said so as I noted. Yet by Monday...
Black Friday sales were 7% better than a year ago.
Yesterday a front page WSJ article speculated that Facebook would be one of the biggest IPOs of all time. Indeed, Facebook notes that demand is so strong, investment bankers are not likely to be needed. Recall that Google held a Dutch auction for its shares. If this proves to be the case, by that point I hazard that mood will have improved so much that a Facebook IPO is liable to coincide with a market high. The point here is that optimism for social media is so high that Wall Street itself can be bypassed.
Europe has not melted down.
Occupy Wall Street is being kicked out of every city it occupies after accomplishing exactly nothing. (Other than to wonder about the wisdom of those endorsing OWS).
America launches its most ambitious Mars Probe yet. (There is little to no interest in space just as we finally have the least risky, unmanned, and best equipped space expedition in history. Savor the irony. Everyone watched as John Glenn circled the earth a couple of times, actually proving only that he survived the trip. This time one will be able to explore Mars as though he or she was there, but with no physical danger, but no one seems interested. Jules Verne would be disappointed).
As noted, oil, gold, and material prices advance, the VIX slowly retreats. Again VIX is professional territory. Investors are still buying into the Fidelity Fixed Income Center, at the very top of the bond market in price, well 2008 was THE top but this is a secondary high.
And so the mood changes. It is just imperceptible enough to let the bears chant, just wait till next week, you'l see, it ain't over.
Amazingly Jim Cramer makes a living often being dead wrong at just such an extreme juncture.Bill Gross at PIMCO is again recommending bonds, as they sport the lowest yields in 30 years! After a couple of decades of correct forecasts, Gross can't let go of the thirty year bond rally. Both these guys are now contrary indicators.
But, TMP is free of charge, we report, you decide.
In pre market trading ,stock markets are on the rise here and in Europe..told ya so!