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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Sun Feb 18, 2007 3:28 pm Post subject: The Cult of the Bear - Another Missed Bull Market |
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A gradual procession of super bears has been quietly admitting they've been wrong in their bearish assessment of the stock market. As the major stock market indices continue to push to higher highs and as market internals continue to reflect a stellar market condition, even the most stubborn of bearish traders and market commentators have been forced to reconsider their positions. Slowly, and with little fanfare, they've been covering short positions.
Yet these same died-in-the-wool bears refuse to turn bullish and are now standing idly on the sidelines watching stock prices move ever higher. If they can admit they were wrong to sell short, why can't they bring themselves to become buyers in what is obviously a strong bull market? That is the question we'll examine in the commentary that follows.
While discussing the issue recently with friend and colleague Bud Kress, a Wall Street veteran, he offered these comments on the bears: “The perma-bears live in their own little world, wrapped tightly in a cocoon womb.” I couldn't help but laugh when I heard this statement. We then began to openly ponder why certain high-profile “perma-bears” have maintained an unshakeable bearish bias for the past few years even as equity prices and corporate earnings have climbed relentlessly. Our conclusion was that there must be a “cult of the bear.”
I looked up the word “cult” in the Webster's Dictionary and found this definition:
“a great devotion to a person, idea, or thing; esp: such devotion regarded as a literary or intellectual fad.”
This definition, loose though it may be, could easily be applied to the stock market perma-bears. After all, the bears clearly have their leaders to whom they pay unceasing homage and devotion. They have their own unique literature, a body of writing encompassing many books and newsletters written by esteemed members of their own group. They have unwavering devotion to an idea (which we'll discuss a bit later in this commentary). And the whole perma-bear movement could easily be regarded as an “intellectual fad” with its own distinct doctrines and creeds.
In recent years I've found that it has become somewhat fashionable for even university-level academicians to espouse the cult of the bear. Back in the ‘80s and ‘90s you'd have been hard pressed to find any admitted perma-bears among the ranks of college professors. But one can see a growing trend in the cult of the bear among this group ever since the tech market crash and recession of 2000-2002. Some university researchers have even published writings recently on the “inherent instability” of the financial markets and of the possibility (nay, the probability) of another financial super-crash in the very near future.
One ivory tower type sent me an e-mail in response to an article I posted on the market's recent Dow Theory bullish confirmation. It was essentially a dictum as to why the market should stop going up “any time now” and why a bear market should begin. The reasoning behind this argument was a combination of “inflated earnings expectations,” “inflation,” etc. In other words, the same tired arguments the bears have been using since about 1982.
I recall one market sage commenting on the profound psychological impact the “tech wreck” of the early 2000s had -- and will continue to have for many years to come -- on the psyche of the average investor. He pointed out that investors aren't quick to forget severe bear markets and recessions and the negative images tend to remain embedded in investors' collective psyche for at least 6-8 years following the crash. This possibly explains why academicians, who typically specialize in the extrapolation of long-term trends, refuse to let go of the horrible memories of all those years ago.
There is nothing wrong with being bearish when the market situation calls for it. When earnings growth begins to deteriorate, monetary liquidity diminishes, investor enthusiasm peaks and market internals start to erode -- that's the time to turn bearish. The time leading into 1999-2000 was one such instance when it called for a bearish stock market/economic outlook. But now is not the time for being a bear!
It will also do well for investors to remind themselves, in a bull market, of the famous Wall Street saying: “Stocks were created to go up.” How simple, yet how true! Of course stocks can go down and even crash. But even a cursory glance at the long-term charts will show you that the stock market has spent far more time rising than falling; moreover, the average bull market tends to be longer and more dynamic than the average bear market. With this basic fact in mind, how can super bears like Joe Granville (from ca. 1982-1996) or Bob Prechter (ca. 1987-2007) justify their long-term bearish bias? If these were merely two unenlightened, anonymous investors we might just as easily ignore their stubbornness. But by their prominence they have been at least partly to blame for leading untold numbers along the same bearish path during these years, some to their own financial peril. So when the market indicators are decisively bullish (as they now are), how can such perma-bears justify maintaining a bearish stance in perpetuity?
http://www.marketoracle.co.uk/Article364.html |
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Quinn
Saving Enthusiast
Joined: 06 Feb 2005
Posts: 181
Cash Points ££ 2817.02
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| Posted: Mon Feb 19, 2007 3:02 am Post subject: |
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Thats interesting, I concur, with similar attitutude to trends at times, due to being too bearish.
We need to recognise when we are wrong and just pile in. Afterall indices such as the Dow are designed to rise in the long-run, as weak companies are replaced by new strong ones ! |
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