Stock market keeps going up, and I’m left in dust
Posted by Frugal on June 15th, 2007
The strength of the equity market is simply amazing. My short positions are hurting. This week I panicked a little bit, and the market turned right around to prove me wrong.
I am beginning to think the year for comparison to the current timeframe probably is not year 2000, but rather 1998/1999. In 1998/1999, shorts in internet simply got killed, and people bailing out earlier missed a big chunk of gain, while the market went up like crazy. I was one of those people, and I may be simply repeating my actions again. Yes, eventually after 2 more years, I was proven right, but that is a lot of money missed in the up wave.
But there is one very important difference between now and 1998/1999. The economy was still in favor of the stock market, while now we have a housing/mortgage implosion. But the factor working in favor of bulls is that the M3 and global money supply is expanding at a breathless pace. While housing stocks are tepid, profits at financial brokerage houses are going gang-buster. They obviously work with Fed and they are the direct beneficiaries from all the money expansion. In fact, the fund manager of CGMRX that I mentioned in a previous post may well be right again. He is buying up financial brokerages. Will the financial brokerage stocks be the next major investment themes going towards 2009 if not already? The leader of the market is definitely not high-tech so far. But if financial stocks go up, market will more than likely go up since it is one of the biggest component in S&P 500 at 20+%.
Regardless of whether shorts are right about the state of economy or not, the stock market can stay irrational longer than the shorts can stay solvent. In fact, it looks like Fed will be blowing this bubble probably well into 2009. If a coming decline does happen, I am guessing that it will be 1987-styled rather than 2000-styled. Effectively speaking, I think that the secular bear in stock market (priced in $US) is over. That is contingent upon no war or big disaster happening in the next two years.
Yeah, cash can be king for a short while, but it will be made into trash in the long term.
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June 15th, 2007 at 7:57 am
So how do visitors at this site know whether the “Sky is Falling” is an honest assessment or a “covering” one’s short position? Also saying that you have a short position in the market doesn’t make you honest, but it is a good start. But hey this is a free market- caveat emptor.
June 17th, 2007 at 9:15 am
I referenced and commented your blog entry with Japan being the core problem.
http://www.devspace.com/~christianhgross/?p=343
I think the carry trade and private equity are driving this market hard and until that is resolved the market will keep going up, up and up… Though I agree when it crashes it will be a 1987 crash, though much deeper…
June 17th, 2007 at 9:21 am
Moose,
We try to convey our views on the markets honestly at any one given time. We substantiate our views with supporting facts, but that is not to way that we’ll be correct most, some or any of the time.
From time to time, Frugal and I have diverging views but the point has always been to show the thought process and the reasoning. If you only care about the conclusion, then you get what you pay for.
June 17th, 2007 at 1:24 pm
Regardless of whether shorts are right about the state of economy or not, the stock market can stay irrational longer than the shorts can stay solvent.
Yeah, and if the shorts are wrong they’re even more screwed.
June 17th, 2007 at 11:05 pm
Markets are very volatile and slowly changing. The most important thing is however that do not lose sight from the short term gain or loss. It is far more important to get the big picture correctly. But the “conclusion” won’t be in after all is said and done, measuring in decades.
Best luck.