Timing the next bull market in stocks
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Markets are down again today (MSCI world index down 0.7 pct so far this morning) and the market overall is nearing a bear market territory again (from a three-year high hit in May).
But asset managers are starting to look forward. JPMorgan Asset Management reckons that if one assumes the current bear market for most equity indices started in 2000 and that the the trend of the previous experiences is to be repeated, then the current environment should be ending around 2014 (By the way, those who predict stock market cycles with sunspots activity reckon the year 2012 or 2013 is the bottom, but that’s a different story.)
But 2014 does seem a long way off.
“While this may sound depressing from 2011, we hasten to add that we are not expecting the ongoing bear market to result in continued downside, but rather in persistence of broad range-trading prior to a sustained breakout to the upside,” Neil Nuttal of JPM AM writes.
Nuttal says that since 2000 the S&P 500 average level is close to 1,200 (compared with Thursday’s close of 1,216.13) , meaning the market has not slid too far out of range.
“At present, the wall appears to be very much in evidence while providing very little opportunity for ascent, notably in Europe, but not exclusively so… The majority of investors are light of risk, meaning that the pain trade (the development that would cause the most pain to the most people) would be a sharp rally in risk assets,” he adds.
Eight days could point to a correction
Morgan Stanley has been crunching some numbers about Europe and come up with something that (not surprisingly) fits their scenario of a near-term stock correction but only within a longer-term cyclical bull market for equities. It all comes down to eight days in March, apparently.
Here is the gist:
During 8 days in March, MSCI Europe was up (more than) 50 percent year-on-year. This is a rare event, has happened on only 80 individual days since 1919. It is a bullish signal on a 12-month view, a cautious signal on a 6-month view. On average, the next 12 months the market has been up 10 percent, up 96 percent of the time, the next 6 months down 4 percent, down 77 percent of the time
As for timing of the correction, MS says it will be when good economic news becomes bad market news sometime in Q2. That is to say, when a string of positive economic data prompts central banks into a policy reaction or when markets react by sending bond yields and inflation expectations up.
Not terribly helpfully, but again not surprisingly, MS doesn’t know exactly when this will be. Could be some way off, it says, because of loose money and mixed economic data. But then again, it says it could be imminent because of potentially peaking leading indicators and sentiment indicators suggesting investor complacency.
So, as the expression goes in England, you pays your money and you takes your choice. When has it even not been thus?
from Funds Hub:
Make hay while the sun shines
More good news for equity bulls from Crispin Odey.
Odey, who called the possible start of the bull market earlier this year, says technically there is "every reason to be hopeful that a major correction will not happen before September".
And, having profited handsomely from his position in Barclays, which is now a 16.3 percent holding in his European fund, he sees the best opportunities in companies that were once unable to refinance but now can get credit, rather than safe-haven stocks.
"I still find myself coming out of meetings with companies whose share price is up fivefold since January and wanting to fill my boots. But it is quite a narrow field.
"This is the year of the prodigal son, with no prizes for being the sensible and good older brother."
(See also Odey's Barclays Boost)
(Follow major developments in the hedge fund industry this week with Hedge Hub's coverage of the GAIM)
Permabears are coming out of hibernation
After a 40-percent gain, the rally in world stocks might be losing momentum.
For permabears who live on doom and gloom to make money this is just a blip which is going to end in tears.
David Tice, a 20-year veteran short seller who manages Federated Investors’ $1 billion short fund, says we are in for a secular bear market which is going to last for 10 years.
“I’ve never more been convinced than anything in my life that this is a suckers rally,” Tice says.
He says short funds — which borrow stocks to sell to buy at a lower price — are negatively correlated to stocks and risky assets, allowing investors to diversify their portfolio.
“An individual really has three legs to his financial stool — pay check/bonus, stocks, real estate. In 2008 all these legs to his financial stool declined,” he says.
“A short fund is negatively correlated. Therefore in a bad economic environment, when people run the risk of all three of those legs declining and are lucky enough to have a pot of liquidity, they should consider putting that to work to a negatively correlated vehicle like a short fund.”
Market bounce at crucial point
The latest stock market rally is at a crossroads as bear market bounces go, at least those seen in 2008-2009. They usually last on average 30 trading days.
Today is the 30th trading day since the UK’s FTSE 100 and the pan-European FTSEurofirst 300 hit their lows on March 9. The FTSE 100 has rallied some 15 percent since then, while the FTSEurofirst 300 has surged 22 percent.
Bulls and bears have been at it for sometimes over whether this latest rally is the “real deal” or yet another bear market rally. Pessimists point to potential shocks in corporate earnings in the latest reporting seasons in the U.S. and Europe, which will give investors a reality check, and the bank stress tests in the United States that are expected to be released on May 4.
Optimists, however, are seizing the not-so-bad economic data from the U.S. to China as well as their belief that equity markets hit the low points 2 to 3 quarters before earnings reach the trough. They argue the market is more or less back on its feet.
Also, the VIX, Wall Street’s fear gauge, has fallen 25 percent since the start of this bounce in equities.
But if you like history, think about the 30 days.
(Reuters photo: Ina Fassbender)
Morgan Stanley bales out
Say this for Morgan Stanley — it is not afraid to buck the trend. With world stocks up more than five percent in the few days that have been April trading and up 24 percent since hitting a low on March 9, the bank has decided bale out. In its latest strategy report, MS says it is moving 5 percent out of stocks to neutral. It likes cash.
This puts Morgan Stanley in the camp that sees the current stock rally as just part of a bear market. It says it is looking at fundamentals to get better before it will decide that trouble is past.
“The three fundamentals we look at are : 1) earnings; 2) U.S. housing; and 3) banks’ balance sheets”, it says.
Interestingly, MS also admits it could be wrong. For one thing, it could be baling out too early with the rally continuing for “positioning and ‘second derivative’ reasons.
More significantly: ”If policy action is successful in reparing banks’ balance sheets and putting a floor under house prices, the next bull market may already have started”.
So back to you, again
(Reuters photo: Brendan McDermid)
Yeah, why should they be afraid. The feds will use taxpayers money again if they fail … as it always goes too big to let it fail and all.
