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Ten Reasons Why This Is Not a Bull Market


It's important to understand that this cyclical bull is part of a prolonged and painful secular bear stretch.

7. While the "stated' unemployment rate hovers just below 10%, almost one-in-five Americans is underemployed; that means they're not working, stopped looking, working below their abilities or working part-time because they can't find full-time employment.

8. From an economic perspective, interest rates have one way to go, price-to-earnings multiples never troughed, and debt-to-GDP ratios will approach or exceed 100% in all G7 countries by 2014, with the exception of Germany and Canada, according to John Lipsky at the IMF.

9. The Congressional Oversight Panel warns that commercial real estate losses at banks alone could reach $300 billion starting in 2011. Almost half of those loans are concentrated at smaller institutions with total assets under $10 billion, and those are the same banks that account for almost half of all small business loans. See also What to Expect from the Commercial Real Estate Crisis.

10. It's easy to forget about the housing crisis; in terms of "what matters now," this concern almost feels passé. We must remember that massive amounts of residential mortgage backed securities are mis-marked at best and toxic at worst, sitting on the balance sheets of private and public institutions and by extension in bank accounts across America. This is in addition to the manifestation of under-water mortgages (negative equity) and foreclosure trends throughout the land.

Total Recall

Do I think the system is broken beyond repair? No, I believe there will be massive opportunities once we've taken the medicine of debt destruction so long as calmer heads prevail. Also read The Great Expression.

That could take another five to seven years but it's difficult to foretell; a lot depends on how we navigate a multi-linear dynamic that includes currency readjustments, the evolution of credit, $500 trillion of global derivatives, two-sided regulatory reform, the shifting social mood, geopolitical fragility, and trade relations.

Is it possible we "echo" higher before that comeuppance arrives? Sure; these aren't natural markets anymore and we must respect both sides of the financial equation. Given the path we take trumps the destination we arrive at, there's only one way we can reconcile these seemingly disparate data points: Carefully, and one step at a time.

With quarter-end bearing down and performance anxiety picking up, market psychology is emerging as the most important of our four primary metrics. The last round of fundamental data points (earnings) beat expectations on the aggregate, the bulls have the technical baton above S&P 1150 and BKX 50 (resistance comes into play at S&P 1200). And while stateside structural dynamics are currently steady, we haven't heard the last of sovereign situations on the other side of the pond.

If you asked me for my near-term opinion, I would offer that the tape tops out before quarter-end under S&P 1200, consistent with the path of maximum frustration as fund managers reach for performance. Remember, when S&P 1150 was surmounted, a lot of shorts covered, removing a natural layer of forward demand. From there, we'll monitor the second quarter flows, which should help shape the tape into the beginning of April.

We each have unique time horizons and risk profiles, which is why blanket advice is so very dangerous. I don't believe in punditry, I believe in proactive preparedness and individual responsibility for our financial choices. It's my hope that by painting the big picture landscape -- and adding color by numbers in the near-term -- I've added some value as we together find our way.

Position in S&P
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