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Momentum21 (42.52)

The Next Bubble to Burst: Bearish Sentiment

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August 21, 2010 – Comments (38) | RELATED TICKERS: ATPAQ , CSR.DL2 , SAN

Since everyone is making predictions out there I came up with one of my own... : )

Financials will be in, inverse ETFs will be out and Media will once again be HOT!!!

The retail investor has already capitulated and the traders are running everyone around in circles chasing headlines. We will look back on our mistrust of buy and hold with regret. 

 

 

 

38 Comments – Post Your Own

#1) On August 21, 2010 at 12:38 PM, binve (< 20) wrote:

Hey Momentum!

I am 100% agreed with your call !! . Eventually this fear bubble will burst and stocks will be a screaming buy as the fear bubble reaches its 'manic phase'.

The only thing that we differ on is the timing regarding the end of this bubble.

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#2) On August 21, 2010 at 12:39 PM, TMFAleph1 (96.63) wrote:

Anything's possible, of course, but that looks very unlikely to me...

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#3) On August 21, 2010 at 12:49 PM, dibble905 (< 20) wrote:

"Anything's possible, of course, but that looks very unlikely to me..."

Isn't this precisely the point of the author?

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#4) On August 21, 2010 at 1:49 PM, simplemts (< 20) wrote:

"For the week ended Aug. 11, ICI reported that equity funds had outflows of $1.43 billion, down from $2.2 billion a week earlier. U.S. equities had $2.07 billion pulled from them"

 http://www.zerohedge.com/article/retail-investors-dont-care-if-stocks-are-or-down-retail-just-wants-out-record-15th-weekly-ou

15 straight weeks of declines in a row out of US Equity funds.  

 I'm with TMFMarathon on this, equity outflows have been going on since 2007, which means three years!  I do not think capitulation will occur in the next few weeks or even months as we see growth drastically declining from Q4/Q1 and possibly contraction.  Personal bankruptcies just hit another new record!  22% of fidelity holders are using 401k accounts as loans (my own Aunt and Uncle already exhausted theirs and still lost their house).  I'm thinking a true bottom is at least 6 months away if not years...

 Until I see debt down significantly I cannot foresee a capitulation in US equities (from a retail perspective).

It's all about the debt! 

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#5) On August 21, 2010 at 2:04 PM, RonChapmanJr (33.05) wrote:

The next bubble to burst - naive optimism    :)

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#6) On August 21, 2010 at 2:30 PM, HarryCaraysGhost (99.61) wrote:

+1 , that picture makes me laugh every time I see it :)

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#7) On August 21, 2010 at 2:50 PM, MegaEurope (20.44) wrote:

Until I see debt down significantly I cannot foresee a capitulation in US equities (from a retail perspective).

It's all about the debt! 

 

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#8) On August 21, 2010 at 3:09 PM, rd80 (96.96) wrote:

15 straight weeks of declines in a row out of US Equity funds.

Good sign that the time to go contrarian is close.

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#9) On August 21, 2010 at 5:43 PM, ralphmachio (28.90) wrote:

This is exactly what we need to precipitate the actual collapse, a bunch of optimism to get people drawn back into the market. 

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#10) On August 21, 2010 at 6:03 PM, dragonLZ (99.34) wrote:

Financials will be in, inverse ETFs will be out and Media will once again be HOT!!!

I hope you are right, brother. :)

Good Luck!

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#11) On August 21, 2010 at 9:30 PM, portefeuille (99.66) wrote:

What is the most amusing aspect of it is that most of the usual "caps" game blog post "bears" will capitulate at a time when most major stock market indices are much higher than they currently are. Oh well ...

some of the bears should scroll through the charts of these indices ...

http://noir.bloomberg.com/markets/stocks/wei_region1.html 

http://noir.bloomberg.com/markets/stocks/wei_region2.html

http://noir.bloomberg.com/markets/stocks/wei_region3.html

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#12) On August 21, 2010 at 9:33 PM, HarryCaraysGhost (99.61) wrote:

ain't happening people.

wait for the mid term results.

credit will be HOT!

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#13) On August 21, 2010 at 9:33 PM, portefeuille (99.66) wrote:

#11 The "worst hit" will be those "Elliott wave" guys, I'm afraid. They wait until "the old highs" are taken out since then some "wave count" they believe in is "invalidated". oh well ...

(quite a few of those indices have "taken out" their pre 2009 all-time highs already by the way. the fixation on U.S. stock market indices and the U.S. economy might not be all that helpful ...)

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#14) On August 21, 2010 at 9:38 PM, simplemts (< 20) wrote:

All I see is red on those indexes Port.

 "Another force at work is the aging of the baby-boomer generation. As they approach retirement, Americans are shifting some of their investments away from stocks to provide regular guaranteed income for the years when they are no longer working.

And the flight from stocks may also be driven by households that are no longer able to tap into home equity for cash and may simply need the money to pay for ordinary expenses."

 These are two secular trends that will last for the next years in my opinion.  

 Job Trend: Unemployment claims steadily rising, unemployment already at 9.5% (At 10.2+ if not factoring in the recent drop in participants).

Boomers: Retirement time starts now... and from the majority of who I talk to they are "done" with stocks.  They want to retire in the next 5 years and feel they can no longer "buy and hold" or that stocks will always go up.  Two 50% declines in 10 years appears to have broken a lot of dreams.  In addition to "playing it safe" with retirement, with personal bankruptcies hitting new highs almost every month individuals are pulling money out of the stock market (as mentioned in the above quote from NY Times) as they are unable to pull money out of their house.

 Until debt gets payed down (more than just the graphs shown by another poster) individuals/families will be buyers of bonds, not stocks.  

Think about how the 70% rise was not enough to pull in the retail investor (seller last 3 years).... it has clearly become a secular shift.  How long it lasts... anyones guess, but I'm thinking until 2012-2014.

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#15) On August 21, 2010 at 9:43 PM, truthisntstupid (93.89) wrote:

So like always, "this time is different" - right?  So for the first time ever,  "the crowd"  is running the right direction? 

Well, be damned if I won't run the other way. 

Must be time to buy again.

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#16) On August 21, 2010 at 10:44 PM, simplemts (< 20) wrote:

I never said anything is different.... Have you ever heard of secular bull and bear markets?  That's not "different", the word secular it is simply just a long time.  

 "The Crowd" are not selling like they normally do at the bottom of recessions in a panic to try and "time" the market.  They are selling because they need the money... and now!  This is drastically different from the selling in 2001 and the 90s recession my friend.  Drastically different.

 Anyways, I've filled this topic enough with my comments and I'll leave it to you and others.

 

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#17) On August 21, 2010 at 10:54 PM, rd80 (96.96) wrote:

and from the majority of who I talk to they are "done" with stocks.  They want to retire in the next 5 years and feel they can no longer "buy and hold" or that stocks will always go up.

If they're done with stocks, where are they getting the yields to generate retirement income?  Cash yields nothing, bonds a pittance, precious metals and commodities yield nothing...  That doesn't leave much besides real estate if they're avoiding stocks.

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#18) On August 21, 2010 at 10:55 PM, simplemts (< 20) wrote:

Sorry, one thing to add from the above, I do use the word "different" but not in the sense of how this is "different from everything that has ever happened".  I am specifically referencing how this is a balance sheet recession that was triggered by debt versus other inventory or irrational exuberance recessions previously.

These balance sheet recessions are not "different" than every other time as we can see dozens of examples (Greece, Japan, US in 1930s, Argentina, etc.) 

I am simply referring to this as being more "painful" than your typical recession and for it to be a VERY long and drawn out process into 2012-2014.   

That may mean that stocks will simply appreciate 2-4% per year until the debt is gone, or more likely in my opinion a total decline of 30% from the recent high (S&P around 850).  We are just over a 1/3 of the way there at today's levels.

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#19) On August 21, 2010 at 11:15 PM, truthisntstupid (93.89) wrote:

simplemts

I wasn't responding to anyone in particular.  Rather, the general idea that always accompanies this sort of pessimism and fear.  Everyone always thinks  "this time is different."

I wasn't knocking you.  I hope you're right.  But since I want the market to stay depressed for 2 or 3 times longer than it did the last time while I buy as many shares of good dividend-paying stocks as I can, I know it isn't gonna happen. 

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#20) On August 22, 2010 at 12:00 AM, BearishKW (< 20) wrote:

#15) On August 21, 2010 at 9:43 PM, truthisntstupid (80.89) wrote:

So like always, "this time is different" - right?  So for the first time ever,  "the crowd"  is running the right direction? 

Well, be damned if I won't run the other way. 

Must be time to buy again.

 

 ding ding ding!

/thread

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#21) On August 22, 2010 at 12:28 AM, DarthMaul09 (29.81) wrote:

The market seems to have a hard time staying with any direction for more than 2 to 4 weeks.  Given the last two weeks, it appears time for another market turn around.  Since the energy stocks have done so poorly this summer, I would guess that this sector has a good chance of recovering some ground, especially if the recent WSJ article leads to an early lifting of the Gulf of Mexico drilling ban.

 

U.S. Saw Drill Ban Killing Jobs

The Obama administration disclosed its deliberations about the effects of its moratorium on deepwater drilling, saying it would cost 23,000 jobs and freeze up to $10.2 billion in investment.

 

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#22) On August 22, 2010 at 9:38 AM, MoneyWorksforMe (< 20) wrote:

"If they're done with stocks, where are they getting the yields to generate retirement income?  Cash yields nothing, bonds a pittance, precious metals and commodities yield nothing...  That doesn't leave much besides real estate if they're avoiding stocks."

This is a very good reason to believe the markets are becoming inflated. Investors have no where else to go for yield. 

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#23) On August 22, 2010 at 2:14 PM, simplemts (< 20) wrote:

Money,

 I completely agree.  I was under the impression that stocks warrant P/E ratios based on earnings and expected future cash flow.  Not simply investors seeking "yield" because there is "nowhere else to go".

 Once investors flood to the market because there is nowhere else to go is the day I sell everything!

 

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#24) On August 22, 2010 at 3:00 PM, rd80 (96.96) wrote:

Once investors flood to the market because there is nowhere else to go is the day I sell everything!

But the blog post and your comment #14 about friends avoiding stocks indicate investors are running away from the market, not flooding to it.

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#25) On August 22, 2010 at 5:24 PM, simplemts (< 20) wrote:

Rd,

As with all things there is an inflection or tipping point.  As mentioned in my original comment, retail investors have been selling for 3 years straight now.  Hardly a flood, but a much more logical and systematic approach.  If there was ever a month that saw a 300+% increase in selling I would most likely buy heavily then.

 Equally, if some investors start dipping their toes into the market I will wait before buying with conviction to see if a trend is established (like Unemployment claims declining in March 2009).

In short, I am monitoring the cyclical and secular trends.  I do not expect retail to magically search for yield in the next few months or capitulate.  If a trend DOES happen, and people start buying stocks again, I would jump along for the ride until I started hearing everyone wanting to buy.

 I believe we are closer to a sustainable bull market than we are to the start of a bear market, and I am at this point only long a few select holdings, but overall, I anticipate further selling pressure as not that much bad news is really priced in.  I like to buy during panic sells and sell during panic buys (90/10% consistent days, correlation high, sentiment at extremes, value 20% off 200 DMA, etc.).  We are not meeting ANY of these requirements at this time. 

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#26) On August 22, 2010 at 6:02 PM, Momentum21 (42.52) wrote:

Wow...thanks to everyone for stopping by. I was out the past day and pleasantly surprised to see the commentary. 

binve (27.27) - are you agreeing with me in part to foil my "theory?" : ) thanks for the comment...

TMFMarathonMan (95.52) - I just happen to believe that more people are sitting around waiting to get into the market at lower levels and are trying to talk themselves into valuations being pricey. It's like the myth of "distressed asset investing" in real estate...there are folks lining up to buy but few selling. Most of the uncommitted/weak hands might already be gone...    

 

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#27) On August 22, 2010 at 6:28 PM, Momentum21 (42.52) wrote:

dibble905 (99.33) - Isn't this precisely the point of the author? Yes! Thanks man...would love to follow more of your posts and pitches going forward...

simplemts (70.80) #4 - good points and yes, I am the first to admit that timing a market top or bottom would be pointless. I just think that the info you provided leads to a higher probability that we have seen the lows of this market back in 2009. there is also strong evidence that net money is flowing into segments like emerging markets which not long ago were the perceived "riskiest" trades... 

RonChapmanJr (99.90) -  The next bubble to burst - naive optimism - seriously? It definitely exists but no one is shouting it from the rooftops right now! : ) Thanks for coming by...

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#28) On August 22, 2010 at 9:03 PM, Momentum21 (42.52) wrote:

msftgev (96.26) - thanks! Porte is not thrilled with my constant use of the Mr. Dax photo but I think it is very appropriate for this post...the volatility brings out the Dirk Mueller in all of us.  

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#29) On August 22, 2010 at 10:44 PM, Momentum21 (42.52) wrote:

ralphmachio (< 20) - This is exactly what we need to precipitate the actual collapse, a bunch of optimism to get people drawn back into the market. 

So you are rooting for optimism in hopes of a collapse? ; )  

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#30) On August 22, 2010 at 11:07 PM, Momentum21 (42.52) wrote:

dragonLZ (99.19) - my guess is that I won't be right in the sense of throwing darts at highly levered tickers to achieve 50% annual returns...but I do think we will get back on track and there will be positive fallout from how businesses were forced to survive since 2008.

portefeuille (99.95) - I am definitely not smart enough to make sense of EWT...I try to keep an open mind about those matters and your point about the global economy. There are many other countries looking to participate in the game and we would be well-advised to keep our eyes open to the opportunities. thanks for all you do sending around those ideas daily! 

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#31) On August 23, 2010 at 4:30 PM, simplemts (< 20) wrote:

"After past recessions, ordinary investors have typically regained their enthusiasm for stocks, hoping to profit as the economy recovered. This time, even as corporate earnings have improved, Americans have become more guarded with their investments. “At this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity funds” rather than the billions that are flowing out, said Brian K. Reid, chief economist of the investment institute. He added, “This is very unusual.”

 

 

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#32) On August 23, 2010 at 5:34 PM, Momentum21 (42.52) wrote:

simplemts (68.96) -#31 somewhat reaffirms the premise of the post when taken on its own.

These outflows are very unusual but as the article states, this money is chasing past performance by moving into bonds. Another article in the same section of the NYT pointed to money flows into foreign ETFs and funds which have outperformed domestic equities as well. 

I get where you are coming from and I think I actually agree with much of what you are saying...with a big exception...I think much of the bad news HAS been priced in. I only wish I knew the actual price! When I find out I will share it with you... 

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#33) On August 23, 2010 at 5:45 PM, Momentum21 (42.52) wrote:

 

The best case against my premise has just arrived from CNBC!  

Why are analysts cutting their price targets at the same time they’re raising earnings estimates? Citigroup and Goldman Sachs did exactly that for Williams-Sonoma and J.M. Smucker, respectively, talking up their improving businesses but still not recommending either stock. Cramer during Monday’s Stop Trading! blamed it on an overall “bearishness of the market.”

 

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#34) On August 23, 2010 at 6:04 PM, rd80 (96.96) wrote:

“At this stage in the economic cycle, $10 to $20 billion would normally be flowing into domestic equity funds” rather than the billions that are flowing out, said Brian K. Reid, chief economist of the investment institute. He added, “This is very unusual.”

Perhaps Mr. Reid's assessment of where we are in the economic cycle is in error. Report this comment
#35) On August 24, 2010 at 6:58 PM, Momentum21 (42.52) wrote:

rd80 (99.33) - Morgan Housel expanded more thoroughly on these recent articles in this post.

Good stuff I think...: ) 

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#36) On August 24, 2010 at 6:58 PM, Momentum21 (42.52) wrote:

rd80 (99.33) - Morgan Housel expanded more thoroughly on these recent articles in this post.

Good stuff I think...: ) 

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#37) On August 24, 2010 at 6:58 PM, Momentum21 (42.52) wrote:

rd80 (99.33) - Morgan Housel expanded more thoroughly on these recent articles in this post.

Good stuff I think...: ) 

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#38) On August 24, 2010 at 7:40 PM, Mstinterestinman (24.72) wrote:

If you wait for the robins spring will be over.

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