A tale of two worlds - some perspective on the markets today
June 05, 2009
– Comments (8)
Imagine two worlds. Both worlds had the S&P at 1500 in late 2007, both worlds have the S&P at 940 today.
In one world, this one, the S&P started sliding down in late 2007, crashing into the 800's after the credit markets siezed following the fall of lehman. A hedge fund liquidation panic caused a very sharp, brief pointed drop to 740 on the S&P on November 20th before the markets settled into a 900ish trading range. Then in mid February a huge prolonged selloff began that drove the markets to 670, a bounce followed, returning them to a 900ish trading range. We'll call this WORLD A
In one world the S&P started sliding down in late 2007, crashing to the 800s after Lehman Brothers went under and having an epic downturn bottoming November 20th. Eventually the volatility waned a bit, but the market just kept sputtering between 850 and 950, fluttering around the 900 mark. Months go by and the markets never really move, fluttering around the 900 mark into their 7th month now in June 2009. We'll call this WORLD B
In WORLD A the headlines scream of a rally, people warn that everybody is too bullish, people holler about there being a new bull market, others are frustrated that the market is up so far, can't believe how high stocks have gotten, people fear an imminent crash because the market is so vastly overextended (I have personally posted my fear of such a thing repeatedly here on the CAPs game, only to have it never materialize as I feared). Its a wild, manic world with wildly varied opinions and heated debates. But a positive feeling definitely exists.
In WOLRD B, if you can use your imagination for a moment, I think we'd have a very different mood. The headlines would read "bear market enters 18th month, S&P stuck well below 1000". Talk would be gloomy, nobody would feel too bullish, we'd all be sitting around wondering if things would ever get better. Negativity would probably be even higher than it still is in WORLD A.
So we'd have two very different outlooks and attitudes. In one world things are at least spottedly optimistic and happy, in the other things would probably be pure gloom and doom still.
But the net result in each case is exactly the same. Save for people who got out below S&P 850 or so, and people who got in an the severely depressed levels of feb/march. The former lost, the latter gained, but the overall position that society is in is exactly the same in either case.
My blog from earlier in the evening started out intending to suggest that the markets have been consolidating gains and retracing even if the broad indexes haven't necessarily reflected this. It ended with an alternate view of this bear market being offered - the WORLD B view, if you will.
I think that the variant view that we aren't really in a market rally, but rather a bounce back to a trading range around 900 or 920ish on the S&P until more details about how the recession and fiscal policy and all of that will play out become clear may well offer a better perspective on where things sit than viewing the market as being in a big rally.
This train of thought - that viewing the market as being in a now 7 month state of being about 40% depressed from its previous highs makes more sense than viewing it as in the beginning stages of any big rally - may offer a better perspective on where things stand. Its tempered my fear that another enormous crash is imminent, but its also tempered my hope that my exit point of S&P 1000-1100 draws nigh. We may have a stock pickers or a traders market for a while, tied up in a trading range centered somewhere around where we are today.
A good stock picker may fare well if these ponderings prove accurate.
And, as always, I should note that I do not have a stellar track record for predicting short term market moves, or market moves at all and nobody should amke decisions with their hard earned money based on my thoughts or assumptions about market movement.
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