Sign that the Bull Market Is finally over?
Contrarians have been waiting for the moment when the last stock-market bear standing gets gored. That would be the very moment when the fabulous multi-year rally would turn into a multi-year bear market.
Month after month, year after year, bears have gotten gored, one after the other, and turned bullish on stocks. But it wasn’t enough. There were still too many bears left standing. So it would be a long wait.
But now, Bill Bonner, a widely-published stock-market bear and founder of newsletter empire Agora, who stuck to his investment choices – “heavy” on real estate, cash, and gold – even as stocks have soared, and who has squandered few opportunities to lambaste stocks, their irrational prices, and the manipulations by central banks and Wall Street, he who thinks that the US is headed for a devastating “credit crisis” worse than the Financial Crisis, well, he too just got “gored.”
It happened in an article he wrote with his trademark humor that vacillates between self-deprecation and self-flagellation. And it rattled a lot of his faithful readers.
My outlook is not as pessimistic as his. I’m by nature an optimist. But my optimism is running out of food.
My outlook on junk bonds didn’t turn bearish until mid-2014. I’d called it a credit bubble for years, but bubbles inflate. Prices go up. The time to turn bearish is when you see signs that the bubble will deflate.
I also called stocks a bubble for years. I pointed at market manipulations, Fed shenanigans, financial engineering, and insane valuations, and I compared some metrics to those just before prior crashes. But my outlook on stocks didn’t turn bearish until sometime after it had turned bearish on bonds.
A few months ago, my outlook on the insane housing bubble and the perhaps even more insane commercial property bubble in San Francisco turned bearish. Before then, I’d called it a bubble and a Housing Crisis, because middle-class families could no longer afford the asking rent of a median two-bedroom apartment or the price of a similar condo.
All bubbles eventually deflate. But until then, prices rise sharply. People floating up on the bubble ridicule those left behind. But over the last few months, there have been signs that the peak in San Francisco real estate was last year, and that it’s downhill from now.
So if people who wanted to buy a condo in SF were to ask me what they should do, I would tell them that they should get their head examined.
And if potential sellers of a SF condo were to ask me what they should do, I’d tell them to put it on the market now, to market it aggressively, and for crying out loud, take the first real offer even if it’s 10% or 20% below asking price because a year from now, today’s condo prices might look like nirvana.
So now is perhaps not the time for stock bears to become bullish. But Bill Bonner didn’t exactly turn bullish on stocks. Instead, he allowed “doubt” to seep in. He’d invest some of his money in stocks. This is how bullish he got in the article:
“We believe this is the worst time to invest in the stock market in the last eight years….”
“For the record, we still expect U.S. stocks to perform badly in 2016 and beyond.”
“But the guiding principle of the Diary is doubt… We doubt that this is a good time to buy stocks. We doubt that the feds’ managed currency system will survive. We doubt that our “Deep State” government serves us well.”
Not exactly very bullish. So he’d stick to his positions in real estate, cash, and gold, but he said, “bowing to doubt, we’ll hedge our bets, too, with stocks.”
His faithful readers were aghast.
Older investors are full of doubts. They’ve seen it all before, including the last three crashes. And they doubt it will be smooth sailing henceforth. Bill Bonner is one of those gnarled guys who’ve been through a bunch, who’ve learned to accept their own limits and stick to what they know. You can see that – and just how full of doubt and how bearish he is on many things – in his video where he explains how he’ll navigate into the stock market and why that might make sense even if there is “another world war.”
Only young investors are certain they know what’s going to happen next. Doubts are alien to them. Doubts just get in the way and prevent these good things from happening. But doubts can also save you from the abyss.
For some contrarians who’ve been waiting for the last bear to get gored, the fact that perma-bear Bill Bonner has been gored, if only through his thigh, may indicate that the rally in stocks is finally over – and ironically, Bonner might actually agree with them.
We live in a financially precarious world, one in which the most indebted government is at it again, and this time even more vigorously, taking the NIRP absurdity to new heights. Read… World’s Worst Sinkhole-Government Sports World’s Most Negative-Yielding Debt
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When the Central banks are buying stocks who knows when it will end.
The Swiss Central Bank is a big Apple share holder!
“In Shocking Finding, The Bank Of Japan Is Now A Top 10 Holder In 90% Of Japanese Stocks” ZeroHedge today.
When you can print money to buy stocks there are no limits.
Curious – the market is virtually unchanged from a year ago and three of its main supports seem to be weakening – earnings, the Fed and buybacks. As a matter of fact, given the number and nature of individual stock “torpedos” along with two sizable market “hiccups” its been fairly easy to lose money during the past 12 months.
Could it be that your bearish friend is suffering from the Instant Gratification syndrome? His rather tentative move away from outright bearishness, suggests that he realizes that giving in to the pain of being too early – not wrong, but early – can be devastating.
The March rally was miraculous. The garbage simply levitated. It was marvelous enough to discredit reason. You can only fall to your knees in praise. When you’ve waited 8 years for the coup de grace it’s scarcely instant gratification.
It’s kinda like being trapped in that Death Star garbage chute………..waiting for 3CPO to disengage the cycle….all the while considering the prospect of being slowly crushed and/or drowned !!
No kidding “older investors.” As I attempt retirement with no reasonable place to put savings, having lost interest in working around what I’ll term “compliance mania” (the unsung productivity killer), having watched my children’s excellent opportunities scalped by the already fabulously rich, aided and abetted by their central bank cronies, I’ll admit I root for da Bears and their moral approach to political economy. But it’s like watching hapless charges at the Somme. The macro-prudentials are armed to the teeth and simply make a data entry to goose futures. I expect them to hold the line during election season. I don’t know when or where they retreat to after that.
I started saving for retirement in my 20’s, cashed some out in my 30’s to buy a car, and lost the rest in the financial collapse. Looking back, the car was the best decision considering what happened later.
At the moment you are better off holding on to your money in cash. Ask yourself everyday, what would I have preferred to do with my money, if I were to lose half of it today in the market. The answer to that question is the answer to what investments are the best for you. Would you have rather traveled, owned a better house, or car, or would you not miss the money at all. Please keep in mind that an illness can wipe out your nest egg as well. Live your life and turn off the market, it is not worth it.
Buy a few thousand ounces of silver?
bead: For what it is worth, I believe “To thine own self be true”. The best and brightest are sometimes wrong, especially in the world of finance. So I recommend staying within one’s comfort zone. I have a conservative view of finance and don’t gamble, so that is how I proceed. Therefore, let your present circumstances and your tolerance for future risk determine your actions. So, what do you do at a casino? The market is pretty much the same thing at this point. And free advice is always worth every penny paid.
Urbanco, one of the largest real estate developers in Toronto Canada, which comes just after Vancouver for its high prices, has just filed for bankruptcy. It has one thousand units under construction. In one of its developments, after almost two years buyers do not have clear title to their homes. A dry wall outfit has a 180K lien.
It raised money in Israel as well as Canada.
Top of the bubble?
if canadiens aren’t making money like they used to, what do you think will happen?
as to stock market values, some of them are fair, considering the circumstances.
a fair price for a good business is an okay deal, unless circumstances are against you.
Mr Bonner has earned far more from his publishing empire than any stock market investment. His writing “voice” is often bearish or suspicious because he knows very well that fear sells.
Information publishing is highly lucrative and has made Mr Bonner and others very wealthy as a result.
I don’t know if I should believe anything he writes at all…
It makes me think of a verse from that ancient book of Viking wisdom called Havamal” (Words of the High One—-attributed to Odin): “The mind only knows what lies near the heart. Each man judges but himself aright.”
i like that. will have to read up on it.
It is funny, I was just reading John Hussman’s latest on what he calls the Iron Law of Equilibrium in which he discusses the interplay of value-conscious investors with trend-following investors, which I think was simply elegant and brilliant.
However, my growing suspicion is that things really are different now, and will continue to get more different- a Rubicon has been crossed. Keith, in the first comment above mentions what has changed- the central banks are now making forays into both corporate bonds and equities. I think the effect of this is going to be the elimination of value-conscious investors in their entirety. In the future, trend-followers can simply sell to the central banks, who will buy and buy until they have bought all the financial paper since, for them, price is no obstruction. I think the future is going to be a slow decay of the capital structure. The market will march on in price, while the value underneath rots like a picked tomato in the open sun.
“The market will march on in price, while the value underneath rots like a picked tomato in the open sun.”
Quite so. The evidence suggests that it may be possible to levitate equity prices so long as the financial industrial complex can cannibalize the real economy. It is not yet possible to predict how long that may be, but it is certain that the consequences to the general population will be severe in the extreme.
The real economy rotting away underneath is masked by the Central Banks.
Reality must catch up one day, but as the Central banks create the money out of nothing they won’t mind too much.
It does seem like a road to chaos, with all the damage hidden to the last possible moment.
mr. wolf. I read bills diary yesterday. I didn’t think it was to bad but I am like you an optimist. sounded like he’s doing more of an experiment, than breaking his bearish ways. and he was talking about that everyone will see whats going on so it will be open experiment and could be a guide, if it works, so when the crap does hit the fan, followers will have a starting point to see what worked or didn’t.
If he is in SF real estate, hard to see how you get gored by that.
Good luck! https://www.google.com/finance?q=INDEXDJX%3ADWCY&ei=Y1IeV5jfMYbcsAHQ2JboCg
Why be bearish when central bankers are buying equities?
“The Bank of Japan may become an even bigger shareholder of the nation’s equities if policy makers decide to boost stimulus this week. The central bank’s holdings have been rising since it began buying Japanese exchange traded funds at the start of the decade, and now account for more than half of those ETFs.”
As a country comes under more pressure the line between private business and the state begins to blur and overlap. In the US, the UK and Germany all
WWII weapons were supplied by private business. But since in the case of Germany they were paid in increasingly worthless Reichmarks, towards the end the ‘business’ was a fantasy. Of course for many of the slave workers, there was on pay- only profit for the companies. But by the end that too was near zero, in real terms.
A year later when activity began to stir at VW’s Wolfsburg plant the workers had to wade across flooded floors. They were paid in a bag or two of groceries, an improvement on a wad of Reichmarks.
@bead: Amen brother!
I used to be ‘smart’ enough to buy stocks and didn’t pay much attention to what Greenspan was saying because it sounded like gibberish to me. If I was investing in electric or gas companies I was more interested in what the weather might be in the Northeast next winter than what the FOMC was up to. If it was biotechs I wanted to know how their drug trials were doing not what the BOJ or ECB policies were.
How things have changed and since what matters now is ONLY what Central Banks do and since they now admit they are using ‘unconventional’ ( meaning untested) policies an investor today is like being a passenger in an experimental aircraft on its first flight. The pilot may announce you are flying faster and higher than any airplane before but that does not mean all is well!
As a simple proletariat who enjoys a good conspiracy theory because one is bound to be true eventually, i look to the past to see into the future.
The signs of a contracting economy are all over the place: declining S&P 500 corporate revenues for three straight quarters (or is it five?), an increasing amount of corporate debt classified as junk, more defaults and bankruptcies, the collapse of world trade, increasing layoffs yet to be reflected in official stats (along with 15 others, I was recently cut – anyone hiring?), etc., etc.
If you read this website alone, you’re aware that we’re in a downturn. It merely hasn’t shown on the exchanges as yet. That’s because central banks are doing everything possible to comply with their unstated prime directive.
So when can one expect to see it?
In 1992, a hitherto unknown governor from a minor Southern state defeated a sitting president, a very difficult achievement since it happened only thrice before in the 20th century (Ford doesn’t count – he was never elected).
How did Clinton do it? It was the economy, stupid. The previous year’s recession destroyed a president who hit approval ratings in the stratosphere because of Iraq War I.
How to get a relatively unimpressive scion of the ruling Bush family to replace a fairly popular administration? The dot com recession (Florida aside but who woulda thunk it would be that close?)
How to ensure the election of the first African-American president? The housing-bank crisis.
So how is a fractured Republican party currently spiraling out of control going to secure the White House this year against a favored Democratic candidate, whoever she or he may be?
I would suggest that the “correction” is coming this fall to a theater near you. I’d bet the second house on it.
Alas, i don’t even own one.
You can tell the time by just noticing the sun’s position in the sky. It’s not nearly as accurate as a watch but it never malfunctions.
I used to just be amazed at how long this game could go on. Then I read this:
“People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.” – John Kenneth Galbraith – The Age of Uncertainty
These people are not going to “go gentle into that good night”. They are going to pull the whole world down around them. That’s why we have insane policies like NIRP and Abenomics.
At my age I can’t afford to wait for a recovery from this kind of lunacy. I need to preserve what I have. If you’re 30 go ahead with your dollar cost averaging and rebalancing. I don’t have 30 years in which to recover.
“People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.”
Never doubt that they would burn down civilization if they could rule over the ashes.
Apparently this really is the goal. There are bad men on the Earth and they will succeed unless you stop them, and the best guess is that you are already too late.
I guess that is why revolutions are so often such grim and bloody affairs and often end in the complete destruction of the upper classes. You would think well educated people could learn SOMETHING from history……
Jerry Bear: Educated people are not all thinking people, nor are they all rational people. And a greedy educated man can be a dangerous man indeed. It calls to mind a lawyer I knew. He only attended law school to figure ways around the law and was one of the most dishonest men I ever had the misfortune of meeting. He ended badly. Very badly.
Bonner is an idiot. “Stocks” is not a thing. Analyze each company and invest on its merits and its outlook for growth over the next year. If a small gold explorer qualifies a massive, high-yield seam, would you refuse to buy it because, “stocks”?
Check out his video presentation (linked in the article above). OK, it’s long and promotional, but it’s interesting. It tells you that he will have an expert pick a few companies that pass very specific criteria. So his strategy is sort of as you lay it out, but based on a special model. He’s talking about a small number of companies, starting with one (1)…. then adding another one… etc. Each has to pass all of the criteria of the model.
This is not a mutual fund approach, but very targeted and disciplined stock picking. That’s why he thinks he can profitably combine his foray into stocks with his gloomy outlook on the economy and the financial world.
I watched it and remembered the articles he wrote about his Argentina real estate years ago. No doubt it hasn’t been a winner for him and I detected a humbleness in his presentation. My final determination not to invest was my “cost free” conviction that PM miners will not stay down forever. Anyone thinking they have gone up too much need to look at the (still) historically low HUI/$GOLD ratio.
Maybe they’ll include a gold miner as one of the first picks (though a lot of the fun with them has already been had).
Old school approach to stock picking doesn’t work anymore
Fortunes are made on stocks that would not satisfy any of his criteria.
Waste of time.
You’ve only got to look at the Nikkei one year chart to see how effective the BOJ’s efforts are in propping up equities. Everywhere earnings are falling because China’s miracle economy is coming apart like a badly made pair of Target jeans. All the kings horses and all the kings men could not put humpty back together again…but they could put up a cardboard image of him from better times.
Try as they might CB’s can’t fudge corporate earnings which have up to now been bolstered by cutting costs (ie laying off staff) and issuing bonds to buy back shares . It’s the normal business cycle at work and the current cycle went into the contraction phase last year. Mergers and acquisitions activity has collapsed, another sign of the cycle working around to it’s inevitable conclusion.
Don’t believe the hype about the omnipotence of CB’s, they are just as cunning as the hedge funds who will run this tired market up one last time and dump their positions. The writing is on the wall and has been since China’s property boom started to implode. The March rally will collapse in May (election year or not) as fund managers collectively start to cull their positions in the knowledge markets won’t sustain a 15% relief rally on the back of fairly dismal earnings.
His sky is always falling. Hardly analytical.
“That would be the very moment when the fabulous multi-year rally would turn into a multi-year bear market.”
Barring calamity this will never happen until there is somewhere for the money to go. Investment folk are told to make money, not have it sit in cash. Real estate still might actually be good as even San Fran has not approached Vancouver madness levels.
Nothing is worth anything. A glass of water to a man dying of thirst in the desert is worth his whole fortune. He has a ‘need’ that must be satisfied.
Funds move like sheep because individual managers must justify their decisions and there’s no better excuse than ‘eveybody else is doing it’. Their ‘need’ is to maintain their jobs – the actual worth of their portfolios is an illusion wrapped in an enigma. That is what you comment upon day after day after day.
A market does not’crash’, resources are reallocated elsewhere.
all I know is I am doing my best with the market we have. doing well so far. then I am going to stay on the down low for a bit if I see something I like snap it up for a few % and drop. I am not going to hold anything for too long cause when it falls apart u want to be free. when it hits I want to be a buyer not a seller. not losing money is the same as making money.
Congratulations. Your article prompted excellent comments.
I have put many of them under my desk top to serve as a constant reminder of investment reality.
“Anyone who claims US is in decline is peddling fiction.”
Okay if this is misleading then what else is misleading as well, none of it can be trusted inclusive of the big changes we’re being told(not asked) to believe in?
Humans evolve externally, someone’s hiding truth or is deluding themselves and others Opportunity costs as a result have been crushing prudent savers unwilling to deviate from Chicken Little’s advice….. Who is they, who peddle fiction, they might be hired/paid for a job well done?
Prices are the only reality.
As a counter argument to the bearish tone…
The rise and fall of markets depend primarily on capital flows….which can be influenced by investor psychology and a host of other economic factors. Most investors today seem to concentrate on either the sentiment aspect or the economic aspect…yet ignore the overarching driver….the flow of capital itself. Everything is connected.
While most US investors are being amazed at how sentiment has held up in light of deteriorating economic fundamentals….the ugly reality is that the deteriorating economic fundaments are still ‘relatively’ great compared to everywhere else.
People read about the crazy real estate prices in Vancouver and San Francisco and readily recognize that these asset prices are being driven primarily by FOREIGN money flowing into these markets. Why are they not recognizing that the exact same thing is happening (and going to continue happening for probably another couple years) on a macro scale in the U.S. equity markets. This is the overarching trends…..capital flowing from declining /risker markets into rising (or at least perceived stable) ones.
While this trend will eventually reverse…it seems pretty certain that Europe and Asia bond markets are likely to implode in the near future (by end of 2017)….which is why capital is flowing into the U.S. now….pushing asset prices up. While everyone can easily point to price levels being abnormally high vs. most of history….the conditions we find ourselves in are extremely similar to very unique fast moving markets where confidence in major global currencies is about to fail dramatically….exactly the problem facing the Euro, Yen, and emerging Yaun….(not to mention a lot of other minor currencies).
In comparison…the U.S. Dollar is seen as a stable benchmark…thus, to escape the almost inevitable devaluation of the above currencies, smart foreign investors will ‘overpay’ to prevent their capital from taking a 20+% (60+%?) overnight haircut sometime down the road.
The prevailing sentiment in the U.S. is a growing wall of worry….which isn’t typically a precursor to a bear market….but more of an indication of a bull market.
While I think we are being set up for a major adjustment in the U.S. markets (around 2020)….I think we see a bull market in equities here until the problems in Europe and Asia crest and foreign investors start seeing value there again after they crash.
In a competitive market, for every company that goes broke, another company rubs its hands with glee.
The idea that everything must be bad merely because some large companies can’t hack it is symptomatic of thinking that big companies are the only barometer of the market.
Not many big companies are at the forefront of change. Mostly they are struggling to keep up. To pave the way to the future, often it is necessary for the big companies to step aside and leave it to the next generation.