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Wednesday, January 16, 2002
"V" for Victory, maybe
A friend asked me for my thoughts regarding a "V" shaped recovery, etc. Here is my reply.
I just can't get excited about the shape of "this" recovery. The idea of a second recessionary wave appeals, if only because it allows a double wave of sell-off/recovery. We can still say we've had a recovery, let another debacle creep in and get sick all over again. Sort of like going back to work too early, before the cold had completely run its course.
Hussman has it right when he writes:
1. Things are really bad out there. They've got to get better sometime.
2. We've got a tingly feeling that the economy will bottom in the next quarter or two.
3. Bull markets typically begin less than 6 months before the end of a recession.
4. Therefore stocks must be in a new bull market now. Better get in before it runs away from us.
5. Stocks are rallying. That's proof that the recession will end soon.
6. In case of fresh bad news, go back to number 1.
Investors are currently tangled in pretzel logic (gg-- so was dubya!). Every hope that the economy is about to recover results in stock buying, and the stock buying is then taken as evidence that the economy is about to recover.
While this has already been said here and there, it does make for at least good writing and serves to underscore that no one knows for sure just now and speculation about the recovery is mostly rhetoric and not reality.
I would add that IMO sentiment is simply not ready to be jubilant, stock gains not withstanding. I clearly remember sentiment during the bubble being very expansive. It just isn't right now. Will it be in 6 months? Who knows. But I'm not ready to buy stocks simply on the bet that it is. Fund managers *have* to buy stocks per their fund requirements. And there are still enough bull-market oriented funds that are more than likely now trading around their positions and as their charter might not allow hedging, no doubt their brokerage house is heavily hedged.
Labels: market-calls-dated, sentiment