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Maybe More People Need To Turn Bullish Before We Can Have Another Meltdown
On the surface of it, there's something odd about claiming investors aren't bullish enough to make a meaningful drawdown a foregone conclusion.
After all, we've just witnessed what, by most accounts, is the most spectacular bear market rally in history, and right in the teeth of the worst economic downturn in at least a century.
That juxtaposition alone should be enough to give one pause, and there are any number of silly visuals one can conjure to illustrate the point, the simplest of which i
Stocks- you have done your readers an immense favor in showing us that at this time, little matters beyond the price action which triggers buying or selling by the models.
A lack of a flood of secondaries also suggests poor sentiment. BUT maybe there is good reason for poor sentiment. Structural growth issues, prospect for higher taxes, horrific corp bal sheets, lack of buybacks, tsunami of future equity offerings, de-globalization, peak margins, and on and on.
Prices are set on the margins. A lack of sellers has contributed to the rally in addition to shott covering and re-leveraging.
If anyone thinks dividends and return of capital will be higher now vs 3,6, 12 months ago then I would love to hear the thesis. Sure discount (risk free portion) has come down but the ERP could have an interesting surprise. If the FCF doesn’t grow or declines and dividend stay flat or decline and buybacks disappear and CF is used to pay down debt (which often doesn’t get equity benefit) it may lead to some to question why they own these.
The future cash flow pie is only so big and has shrunk relative to just a few months ago so any gains now limit future gains.
People will catch on. Maybe the “smart” money has already. Always hard to get the last hurrah.
I for one am not playing the greater fool theory. If I find value I’ll go long but for the market I just don’t see it.
Hope you all are smarter then me. Trade well my friends.
Anonymous, You are speaking my mind in this post. Thanks for this. I have long ago determined that if one does not see the future as clear as mud then I am entertaining one of many possible delusions.
Appreciate the post. Seems to me the general problem is about revenues, and I’ve yet to see a plausible theory to suggest otherwise. Hence, more disinvestment (especially layoffs), which would accelerate that topline spiral down, and almost certainly lower FCFE. That is for the good companies that don’t first become insolvent at these historic debt levels. Not sure about ERP, but if the FED succeeds in pinning the top of the capital structures to a lower bound, “reality” could find its expression in the equity tail. It’s also possible that CAPM goes the way of the dustbin, like any good theory that serves well for a time and is eventually superceded.
An unprecedented Liquidity infusion has let the Horses to the pond….. This mornings posts (thanks ) have once again pointed out the shadows of what appear to be Alligators below the surface left there by our seemingly omnipotent masters in their haste… If one were a skeptic the conclusion would be there is more room to run to the downside in this case than there is advantage to the upside.. Consulting my ever present magic 8 Ball concludes “outlook cloudy ….all signs point to yes ….please try again later ” Reversion to the mean perhaps…..??
What would it take to lose confidence in the Fed and the idea that this is a liquidity driven rally?
Could part of the exuberance be that we’re now hopefully only five months away from getting rid of the worst president (and rotten senate majority) America has ever seen??
And higher corporate taxes?