The Bear Has Passed

I simply cannot get over some of the thoughts I’m seeing posted.

Marketwatch headline “Lower prices attract buyers“. I mean come on. Firstly, lower prices? We had lower prices on Thursday too but I guess that didn’t help much. Secondly, all shares have buyers! The only way to fix this headline is to change “Lower” to “Higher” and get rid of the words “attract buyers”. Bloomberg’s headline seems far more appropriate U.S. Stocks Rebound as Brokers Advise Buying After Sell-Off”.

Get this one. “The worst way to invest is to buy when optimism fills the air like it did two weeks ago, and to sell out when everyone’s predicting the end of the world, like last week.” The end of the world?? (yes two question marks, for proper analysis of such a pompous statement see our previous post “It Doesn’t Matter).

The following note from the article above should tell you exactly where you shouldn’t be looking – the Media!If I knew that, I’d be a professional investor, not a professional writer.”

This is nothing more than an inevitable short-covering rally. It may last for a few more days and may even attract buyers (higher prices will attract them that is). After that we are due to see a lot of seemingly meaningless motion and volatility. Looking at some historical chats it is interesting to note that crashes never occur right after the exact top, but jumped around for a while in a wide two-steps-back one-step-forward scenario. (Great time to be a Day Trader!)

Honestly, I considered covering my shorts due to the excess pessimism but advised against it since (1) the bad news is still coming out and is going to hit stocks again. It’s a matter of time. And (2) the meaning of a day like today (in what seems to be a beginning of a down market) is insignificant. This is especially true for small speculators shorting in small portions. Considering fees they may even come out negative.

Just one more bone I had to pick, and its on Alexander Green from the InvestmentU. He writes

Valuations are reasonable, too. Today the S&P 500 is selling for 16 times trailing earnings. That’s well below the average p/e of 21.7 for the past 10 years. And nowhere near the 2000 peak of 28 times trailing earnings. (In fact, the average p/e for the market the last 50 years is 16 times earnings – right where we are today.)

“Reasonable” is usually defined as something that is congruently sensible. These valuations however are not. You cannot compare an object that has been in motion for a longer period of time (the earnings valuation at the conclusion of a 20 year Bull Market and four year mini-bull cycle) to one that has just begun its course (a inevitably continuing secular bear market contained so far by a mere two years of declining prices).

I’m sure that the average 50 year P/E average for 1980 was quite different, considering it would have spanned two Bear markets and one Bull as opposed to two bulls and one Bear. So much for reasonable.

Did anyone consider that Ben Graham called for a degree of increased safety at the exact top in 1965!

Investors have turned bullish again and this couldn’t possibly be more bearish.

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