BBMC - Taking A Bearish Attitude
Summary
- Most of the media tends to focus on the results of the 30-stock DJIA, which gives you a distinct happy view that this senior index is up +14.40% from its low point, which is in the mid-range for rallies after a sizable decline.
- A much larger sample found in the S&P 500 index, weighted not by price but by market capitalization, has gained +9.05%. This is a more normal-sized bounce, not the large gain seen in the DJIA.
- Considering this index is experiencing a period of increased volatility and is only up 353.44 points, it seems more like a rally in a traditional “bear market”.
Unexamined thoughts can contain time-bombs antithetical to generally accepted views. Good professional scouts (analysts/portfolio managers) should review as many unexamined thoughts as possible to find comfort in their present views, or look for possible reasons to change them.
The closer you focus on media designed for mass audiences, the smaller the focus on detail. This results in more emotional and decisive views. The conclusions might end up being correct, but the historical odds of being right are substantially below half.
A good example is the reported percentage gain from the June lows for the 3 popular stock market averages. Most of the media, with their limited space and time, tends to focus on the results of the 30-stock Dow Jones Industrial Average ((DJIA)). You get a distinct happy view that this senior index is up +14.40% from its low point, which is in the mid-range for rallies after a sizable decline.
A much larger sample found in the S&P 500 index, weighted not by price but by market capitalization, has gained +9.05%. This is a more normal-sized bounce, not the large gain seen in the DJIA. Considering this index is experiencing a period of increased volatility and is only up 353.44 points, it seems more like a rally in a traditional “bear market”.
Tech-oriented stocks led global markets both in the last expansion and during the most recent decline. There were some notable near-term declines in earnings and or future guidance, yet their prices increased +6.58% as measured by the NASDAQ Composite. The sectors that go down most in a short-term market rally often lead on the upside too. No so now!!
The problem facing the world in terms of chatter by politicians and pundits is inflation. People don’t understand that inflation is a price adjustment mechanism to equate the value of goods and services to the currency at hand. Inflation is a measure, not the cause. It is created by perceived shortages, not excess demand. The shortages are partially caused by the declining productivity of human and financial capital.
The collective failure to address these causes suggests one should take a bearish attitude in anticipation of a probable recession. The real fear is that without addressing the real problems, we will experience future deeper recessions, stagnation or, worse for capital owners, stagflation.
How do you see it?
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Taking A Bearish Attitude