Are you a Bull or a Bear? A GoldmiingXpert or a DeerHunter?
Couldn't help but devote this week's blog to the debate going at present on GoldminingXpert's blog between himself and DeerHunter73. As most of you know GMX has been calling for a market turn for a little while now, while today DeerHunter posted to him :
"I like this post but again I disagree. I’m not sure how old you and it doesn’t matter. I know your in college and don’t have YEARS of experience in this market. Yesterday on Cnn, Headline news, Bloomberg, Cnbc, Msnbc, Fox Business and fox news, YES I usually have all of those channels on at the same time. Every single analyst stated they all see the S&P gaining ground and closing the year at or near1100. One of them stated and I quote” The S&P could easily be at 1700 in the next 2 years. Not one of them said the S&P would sell off and go back to the 600s as a few on here want to think. Few of them said they saw a SMALL correction down to 825 and then another huge rally back to the high 900s. My comment is simple Yes I like your post it gives me something to read while having my coffee and reading the WSJ. However I’m a little more inclined to listen to guys who manage billions on a daily basis and who have been involved in the market for years some as many as 40 then a college student. Had I followed your advice back when you said the market was going to plunge and bulls should sell, I would have lost 10s of thousands in profits."
So, the lines are clearly drawn. Who do you side with? The exposure and experience of the TV financial analysts, or GMX and his superior CAPS score.
Me? I'm siding with GMX (as I often do, even if I do think he's sometimes a little early on calls like these). I think he's dead-on for the following reasons:
1. There's currently a backlog of home inventory of approximately 2.4 million homes (down from 2.8 a year ago). In order for the housing downturn to stabilize and for prices to start going up again, the supply and demand for these homes will need to normalize. Based on the pace at which we're working off inventory, it will be another 4-5 years before this happens.
2. A housing bill signed by President Obama on Wednesday gives the FDIC a temporary blank check for $500 billion, which is a clear warning that U.S. regulators are worried about a tsunami of bank failures in the not-too-distant future.
3. Community and regional banks still have $550 billion in Construction & Development Loans on their books as of this writing. These loans represent a hidden inventory of about three million new homes planned, partially completed and partially funded. Again, this doesn't bode well for a housing or credit market stabilization.
4. The Builder confidence for newly built, single-family homes improved to 16 in May to the highest level since September of 2008, up two points from April. This was celebrated in the headlines, but it hid the fact that this is still a long way off from the historically neutral rating of 50.
4. The SPX has been showing declining momentum since the May 8th high at 930.17.
5. Market rallies of nearly 40% never happen without at least a significant correction.
Bottom line, this market is going back down again. Probably to retest the lows set in March.
If you're a bull planning to stay long, at least do yourself a favor and do so with a hedge.
Either that, or grab something to bite down hard on.