Give us a rally and the most talented market players in the world think we are in a new bull market. That's exactly what is starting to happen.Some of...
Give us a rally and the most talented market players in the world think we are in a new bull market. That's exactly what is starting to happen.
Some of the most talented people in the stock market business are starting to turn bullish. I'm surprised to see the likes of Dennis Gartman,
Mark Mobius, Mark Farber and others turning bullish on stocks.
After hitting a low for 2009 of 6,440 in early March, the Dow Jones Industrial Average has rallied an amazing 1,220 points...all in a couple of weeks. The story I hear from most bullish market forecasters is that fear set in after the banking crisis and investors dumped stocks too quickly. Now those same people are realizing that the efforts of the government may actually work and they are not in the state of the panic they once were, so they see deals and are coming back to the market.
But here's the secret as to why the market is fooling even the best of traders and analysts:
Through history, as far as I've studied, bear markets have ended at extreme good values in stocks (dividend yields close to six percent, price earning multiples in the single digits). Bull markets have ended at extreme overvaluation (dividend yields close to two percent, price earnings multiples in excess of 20). The great bull market that ended in October 2007 ended in extreme overvaluation. We need to see great stock values appear at the other end -- the current bear market -- before the bear has rested its case.
I can't call the Dow Jones Industrial Average of selling at over 20 times earnings (as we have today) a great value. In my opinion, stocks are rising for two reasons.
First, it is natural after such a sudden fall in stock prices (35% drop in 2008 alone) for stocks to rally in the face of a grand bear market...the old nothing goes up or down in a straight line theory. Second, the goal of a bear market is to bring down as many investors with it as it can.
Right now the bear is setting the stage for its big act: get as many people back into big-cap stocks as possible before bringing stock prices down again. Please, don't get caught in the act. There are some great deals amongst small-cap stocks, but the big-cap stocks (the ones that are in indices like the Dow Jones Industrial Average) are still extremely overvalued.
** Michael's Personal Notes:
My weekly stock-picking and market prediction letter, appropriately called "Michael's Monday Morning Profit Forecaster," will publish its first issue on April 6. If you haven't already signed-up, you can get more info here:
http://www.lombardipublishing.com/ads/profit_forecaster/index.asp
** Where the Market Stands:
Dow Jones Industrial Average is down 13% so far in 2009...a comeback after being down 27% for the year. It takes 8.3 ounces of gold to buy the Dow Jones Industrials index today. Call me loony, call me too bearish, but at one point ahead, I expect to see the price of one ounce of gold and the Dow Jones Industrial Average be valued the same. Hence, either gold needs to go much higher (which it will) or stocks need to eventually come back down (which they will, too)...all thanks to the potent mix of rising inflation from the Fed's liquidation efforts and an eventual U.S. dollar crisis.
** What He Said:
"The proof the party is over in the U.S. housing market could not be clearer to me. The price action of the new-home builder stocks is telling the true story -- these stocks are falling in price daily (and the media is not picking it up). Those that will hurt most when the air is finally let out of the housing market balloon will be those buyers that bought in late 2005. In fact, the latecomers to the U.S. housing market may end up looking like the latecomers to the tech-stock rally that ended so abruptly in 1999." Michael Lombardi in PROFIT CONFIDENTIAL, March 1, 2006. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.
Profit Confidential
---
http://www.profitconfidential.com/
LOMBARDI PUBLISHING CORPORATION
News, Analysis, and Information Services Since 1986.
One Million Customers in 141 Countries.
Lombardi Publishing Corporation
Financial Publications Division
350 Fifth Avenue, Suite 3304
New York, NY 10118-3304
---
Copyright 2008; Lombardi Publishing Corporation. All rights reserved. No part of this e-newsletter may be used or reproduced in any manner or means, including print, electronic, mechanical, or by any information storage and retrieval system whatsoever, without written permission from the copyright holder.
