Is Strong Wrong ... Or Weak Right?

October 8, 2009
By DAN DORFMAN

The bull-bear debate rages on, but no two ways about it: the bull, judging from the market's ongoing Samson-like strength following roughly a 50% sprint from its March lows, has firmly grabbed the Wall Street reins. The bears are still out there hollering fire, but the fact of life is no one is paying any attention to the dire warnings from the more prominent skeptics.

In particular, these include dour economist Nouriel Roubini, who has suddenly began to waver on his bleak economic projections and recently forecast another major stock decline; global money manager George Soros, who predicts the "bankrupt U.S. banking system" will lead to a very slow economic recovery; and Federated Investors' strategist David Tice, a perennial bear who sees the S&P 500, now at about 1065, tumbling in a year to 400 and maybe even to 325.

Given the vigor of the market and increasing signs of economic pep, our trio, for now at least, is rapidly losing any semblance of credibility. One trader sums it up, "The beat of the stock market -- a harbinger of what's ahead for the economy -- has swung from a slow fox trot to fast stepping disco dancing," he says, "and the non-believers like the ones you're talking about look like buffoons."

For some thoughts, I rang up four market pros, both bulls and bears, one of whom ridicules the bullish thesis. That's Charles Biderman, the head of TrimTabs Research, a West Coast liquidity-tracking service partially owned by Goldman Sachs. Steadfastly bearish since April, which Biderman says has been very frustrating, he sees a market decline of about 20% kicking off at any time.

The key reason is his contention that the economy, contrary to general belief, is getting worse, not better. In support of this view, he points to:

--Falling wages and salaries (down 8% year over year).

--Substantial numbers of understated job losses. Responding to government claims that new companies over the past three months have created more jobs (184,000) than have been lost by older companies that have gone out of business in the same period, Biderman says "that's insane and utterly unbelievable."

--Plunging bank lending.

--Millions of new foreclosures in the pipelines, with 6 million or 11% of the country's mortgages not current.

--A dramatic reduction in money-market funds and CDs on the part of consumers who are using the money to pay their bills and reduce debt.

The way Biderman figures it, professional investors have been borrowing like crazy to buy stocks, which is what's been goosing the market. But with margin debt way up and mutual fund cash reserves hovering at record low levels and very little new money going into them, he figures it's only a matter of time before the big guns run out of cash and stocks head south big time.

Read more at: http://www.huffingtonpost.com/dan-dorfman/is-strong-wrong-or-weak-r_b_313865.html

Some Analysts See an End to Market Rally

August 31, 2009
By JACK HEALY

It's been a blockbuster summer for the bulls on Wall Street. Shares are up more than 15 percent since mid-July, investors are feeling optimistic, and once-idle money is pouring back into equities.
But as Wall Street heads into September, historically its worst-performing month, the party may be winding down.

Some of the analysts and investors who called a bottom in March, when the markets hit their worst levels in more than a decade, now say they are detecting a peak in share prices, and they warn that stocks could be headed for a sharp pullback.

Markets drifted over the last week as investors shrugged at more signs the economy was slowly turning around. Stock prices are not such bargains anymore. And corporate insiders, including executives and board members, are starting to sell, suggesting that some of the smarter money is heading for the door.

"The people who know are getting out early," said Art Cashin, the director of floor operations at UBS, who said his "gut feeling" about the markets prompted him to sell some stocks last week. "This rally's a little long in the tooth."

On Friday, the research firm TrimTabs reported that insider selling had grown to $6.1 billion in the month of August through last Thursday, its highest levels since May 2008 - when the Dow Jones industrial average was floating above 12,000, compared with just over 9,500 at Friday's close.

The ratio of insider selling to insider buying also soared in August, to about 30 to one, its highest levels since the firm started keeping numbers in 2004.

"You have a classic case of greed stampeding investors into believing that nirvana is at hand," said Charles Biderman, chief executive of TrimTabs. "We just don't see how the market's going to last."
Of course, insiders are not always right. Many of the country's smartest investors got clobbered during the downturn last year, and analysts say it is normal for investors to cash in some gains.
And betting against Wall Street's momentum has not been a smart move lately. The Dow and the Standard & Poor's 500-stock index closed on Friday near their highest levels of the year. The Dow is up 45 percent from its March lows, and the S.& P. 500 is more than 50 percent higher.

Analysts say that financial stocks are looking even frothier as trading in a handful of big banks has come to dominate the action on Wall Street. The KBW Bank Index, which tracks two dozen national and regional lenders, has surged more than 150 percent since early March.

Shares of the troubled insurance giant American International Group have quadrupled. And Citigroup, Bank of America and Wells Fargo, while still down sharply from their record highs, have been some of the rally's biggest winners.

For months, the cautious and pessimistic voices on Wall Street kept saying the rally would end as investors realized the extent of problems facing the economy - that the financial system was still on life support, companies were struggling to generate new revenue, and nearly 15 million people in the United States were unemployed. But the markets defied their warnings and chugged higher.

The investors now waiting for Wall Street to lose its footing see a big "sell!" sign flashing in the confidence that has accompanied the gains.
Just before stocks turned around in early March, only 2 percent of investors were optimistic, according to the Daily Sentiment Index, which measures the mood of small traders and is run by Jake Bernstein, an independent market analyst. Now, the index shows that about 89 percent are feeling bullish. Investors were equally cheery when the Dow hit its record high in October 2007.

Robert Prechter, president of Elliott Wave International, a technical analysis firm in Gainesville, Ga., cut his negative outlook on stocks in late February. "Now," he wrote in an e-mail message, "we are firmly back on the bear side." Investors might be embracing greed once again, but Mr. Prechter said he doubted the stock indexes could replicate the remarkable gains of the past five months.

Others see signs of trouble in volatile market swings in China, in the American commercial real estate sector, or in just the sheer amount of time that has passed without a major drop in stocks.

"I think everyone's pretty bearish," said Thomas J. Lee, the chief United States equity strategist at JPMorgan Chase. "People I talk to think there's a 10 percent correction coming."

Jeremy Grantham, chairman of the investment firm GMO, was another investor who began encouraging others to buy during Wall Street's darkest days. But when the S.& P. 500 rose above 1,000 this summer, his firm started taking money off the table.

"We said that's enough above fair value that you want to do something," said Ben Inker, GMO's director of asset allocation. "And we made a move."

So far, it is just a small one. The firm cut its equity holdings by about two percentage points, to 63 percent, which is still up substantially from last year, and it is focusing on "big stable blue chips."

The hedge fund manager Doug Kass, who declared in March that stocks had skidded to a "generational bottom," said last week the rally had run its course.

Like other investors who expect the markets to falter, Mr. Kass said he believed the economy was not heading toward a quick or easy recovery. Companies have made themselves look profitable by slashing costs, but he said they are not going to rake in more money in the months ahead as long as weakened consumers stay in hiding.

"I think we've seen the high for the year," he said. "There's a time to hold 'em and a time to fold 'em. And I think we're at that point."