Ideological Bear
Posted by ML on October 19th, 2006
I found this term when surfing one of the financial sites over the weekend and thought it an apt term for my thinking at this time. Just to clarify: I’ve been writing about asset allocation which normally calls for being fully invested at all times. However, only about half of my assets are invested that way. With the other half, I try my hand at stock picking as well as market timing.
A big part of my approach is top-down, macroeconomic based. Frankly, I see the US and to a lesser extent, global economy on very shaky ground. A central theme of our economic system strings together (over)consumption of the US consumer, Asian and Middle Eastern trade surpluses and recycling of these surpluses into US debt instruments. A crack in this chain would bring painful adjustments for everyone involved.
I see the US consumer as the weak link in this symbiotic relationship. Unless you spent the last year in a cave, you are well aware of the drastic slowdown in the housing market all around. But a “soft landing” remains the current consensus. Although many home builder stocks have lost 50% or more from their peak they have stabilized since July. I, however, count myself in the camp that thinks the unwinding from this historic housing bubble is far from over. The next phase of decline, may well involve lenders and mortgage backed securities (MBS) such as this latest news on bonds from Countrywide Financial suggests. [Disclaimer: I’m shorting BZH and LEND.]
“What a load of crap!” I can hear you say, “What about the Dow’s daily new highs?!” I admit I didn’t see that one coming. I have some positions in bear market funds. Even though I’m net long the market, watching this relentless upward march in the major indices has put a knot in my stomach the size of which I never imagined possible.
So it finally brings us to the term “ideological bear” which to me is a state of being bearish, yet gored by this bull too many times to go seriously short. Funny, maybe, unless you are in the same shoes. After much soul searching though, I still see this rally fueled by liquidity akin to the post Y2K “melt-up”. Of course, if we’re closer to 1995 than 1999 there will be a tremendous opportunity lost. Alas, only time will tell.
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October 19th, 2006 at 7:58 am
ML,
I think this biggest bubble in human history (real estate bubble) will certainly leave its indelible mark in the stock market.
At some point in time, I will probably go in and short or buy put on CFC (countrywide), and maybe Washington Mutual. Mortgage-back securities are certainly the first place where everything will start crumbling.
October 19th, 2006 at 8:48 am
ML,
Great timing on this post,
! LEND just adjusted downward on the full year earning, and its stock just fell almost 10% today, 
.
Frugal
October 19th, 2006 at 10:15 am
Frugal,
Yep, LEND is down 12% now! Gold and gold stocks are doing extremely well today, could this be the turn?
ML
October 19th, 2006 at 3:39 pm
“Gold and gold stocks are doing extremely well today, could this be the turn?”
Although Frugal knows that I showed no fear on the mining stocks when he asked about the metals, the charts don’t look that great. Keep in mind it can change.
October 20th, 2006 at 12:54 am
Yeah, I’m still neutral on precious metals right now. I start to think that both oil will be range bound, and precious metals may have yet another low before an extended range bound actions come.
But all of these are simply in preparation for another even bigger up wave to come, except maybe much later for another year.
Only guesses now. Right now, markets are quite unclear of their intentions.
October 20th, 2006 at 10:57 am
Yeah, I basically agree we’re not out of the woods yet. There may be a small uptrend developing but the HUI needs to get above 310 (+/-) then 325 (+/-) to have a fighting chance. I’ve said before that HUI=260 is a distinct possibility.
The real bull market won’t resume till the Fed cuts rates again.
October 22nd, 2006 at 9:09 pm
I recently picked up shares in GCS. I expect another pick-up in oil and other commidities.