Ideological Bear

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.

MillionaireMan
 

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