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Bullitt

In What Way Will This Be Different?

Rating: 5 votes, 4.20 average.
After Bear Sterns revealed that one of their hedge funds was in trouble and would be forced to close is probably the most significant point we can all relate in which the markets began to show signs of strain. I also remember hearing the experts and analysts, aka the ones who currently do or once did analyze the financial markets for a living, claim that the financials have always led us out of any bear market/recession so watching the banking indexes for signs of strength would be the surefire indicator. Well, at the time it sounded good so I began watching what the banks did on a relative basis. However, recently, I think I finally had that moment of clarity that brought me to believe it's going to be different this time.

Anybody can go out and say this is going to be the worst recession in humanity without any knowledge whatsoever of the general markets, but anybody can also walk into a casino right now and plop down their life savings on 45 Black in roulette because they have a good feeling about it. If thousands of people did this at once, somebody is bound to hit the big one and gain his/her 15 minutes of fame. So with that, and keeping in mind that it's very difficult, almost to the point that I believe it to be impossible to say or know ANYTHING that isn't already factored into the markets at this point in time, I'm still going to give my best shot and state my case for what will make the rebound different this time.

Looking at any bank or bank index, it doesn't take one with much market knowledge to realize that over the past 2 years, bank and investment bank stocks have been destroyed. The stimulus and cash injections just haven't worked the way they have in the past. Looking back to around 1980 or so when this entire mess, in my opinion, touched off like a rocket; outside intervention has always found a way to take the risk premium out the the financial markets. Put another way, if the market was a person, this person just ate potato chips and other junk food non stop, only to be saved each and every time from obesity and death by pills of modern science. Instead of mixing in a treadmill or walk every now and then, Mr. Market simply popped a few weight loss pills and continued to indulge in cheesecake knowing that no matter what happens, modern science would produce another pill to keep him running. Well, around mid 2007 those pills just stopped working. Mr. Market has been forced to hit the treadmill and he doesn't like it one bit. It's the best thing for him, but nothing is easy and the pain is making a lot of folks out there uneasy. BAC, a bellweather in which many have relied on for dividend income over the past 20 years has been forever ruined by the greed, ignorance, and arrogance of it's CEO by gobbling up CFC and MER and overpaying for them in the process.

So with that said, I think it's time to focus on a different sector for market leadership than the financials which we have come to lean on for so long. The banks have been hammered into the ground and will most likely be unable to rebound from this mess like they have on every other occasion. The capital, lending, and confidence is just not there anymore and we've just begun purging the excesses of past 30 years. It's not that I'm not a fan of doomish commentary. I'm not a fan of those who complain and rain on us with the day of reckoning commentary (which is already factored into the market 99% of the time) and do not bring a solution or idea that they believe would make things better. Most of these overly bullish or overly bearish analysts in which everybody should be avoiding (I hope) will benefit if the market moves in the direction they are predicting. (The ones who say, "Well, we're neutral right now" should also be avoided because they are too arrogant to come out and say they have no clue what to do next.)

Me personally, I have no idea what sector will be the next market leader though I do believe that the commodity sector will have some degree of outperformance in the next decade. Why? Well, with the lack of borrowing, lending, investment and increase in job, project and growth cuts, I'm thinking that if the demand for commodities should stay the same or increase even slightly, that the producers will find even greater profit margins going forward as they are unable to keep up with the demand. Like I said, unless I'm saying something that nobody else knows, this is most likely already factored into the markets right now.

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Comments

  1. tsptalk's Avatar
    Nice post bullitt. It is amazing to me how split the "experts" are right now. I don't recall a period with more uncertainty.
    anybody can also walk into a casino right now and plop down their life savings on 45 Black in roulette because they have a good feeling about it.
    Is that the Medoff investment plan; betting on something that doesn't exist? ...the roulette wheel only goes up to 36.

    That may be my retirement plan, ala Fred Smith at Federal Express. The story goes that Fred didn't have enough funds to make payroll at one point so he went to Vegas (I believe) and made one even money type bet (I believe it was either roulette or craps). If he won, they stayed in business. If he lost, it was over. Obviously he won.
  2. Bullitt's Avatar
    Haha, Madoff. It's one thing to lose your own money. It's whole other thing to have somebody else lose it for you.

    Obviously your odds at the casino won't be too much in your favor if you're taking the same bets as I am in roulette. For some reason I thought it went to 48
    !
  3. robo's Avatar
    Human beings are subject to wild swings in their levels of fear, risk tolerance and
    greed. That won’t change. I base my whole approach on buying when others
    are fearful and selling when others are greedy. The reason Shakespeare is so
    relevant still today is that his plays were all about human nature, and human
    nature never changes." - Mark Sellers
  4. robo's Avatar
    “Strong intermittent advances are typical during bear markets, and can often achieve gains of 20% as we've seen in recent weeks, and sometimes substantially more. But the very existence of bear market rallies can be a problem for investors, because they clear the way for fresh weakness. The scariest declines in bear markets are typically the ones when investors think they are making progress and recovering their losses, only to see stocks go into a new free-fall.

    “That cycle of decline, followed by hope, followed by fresh losses, is really what ultimately puts a final low in place. The final decline of a bear market tends to be based on “revulsion” – a growing impatience among investors who conclude that stocks are simply bad investments, that the economy will continue to languish, and that nothing will work to help it recover. Revulsion is not based so much on fear or panic, but instead on despair and disillusionment. In a very real sense, investors abandon stocks at the end of a bear market because stocks have repeatedly proved themselves to be unreliable and disappointing.

    http://www.hussmanfunds.com/wmc/wmc090126.htm

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