My Bull Case

I don't agree with David Tepper that we are in a win/win situation because of the Fed, but that does not mean the bulls don't have a case. The following is the bull case as I see it:

As long as the economy and earnings don't completely fall apart share buybacks by corporations, cash M&A and hedge fund re-risking could fuel a rally during the seasonally strong part of the year.

The bears have  a case as well as the economy is slowing. Combined with the imbalances, that makes the chances of an accident unusually high. Additionally, now that the market cleared its extreme oversold reading and the extremely negative sentiment there is room for downside even without an accident. 


Anonymous said...

My bear case is very simple. The United States still has major imbalances (huge trade deficits, inflated financial sectors, excessive pension promises and other entitlements) and someday the chickens WILL come home to roost. It doesn't matter if the day of reckoning is tomorrow or 20 years from tomorrow. Stocks are perpetutieis and thus forwards-looking at the fundamentals level. At some point, reality will trump upwards momentum and then the momentum will carry us in the other direction and we'll undershoot fair value, which I would peg at 1000 for the SP500. I don't trade short term moves like you nor do I like being short. I just wait for the really big dips and then and only will I buy. In the meantime, I'm doing quite well on my intermediate term corporate bonds.

Even if the Fed doesn't carry through with QEII, they still won't raise rates anytime soon, given how high unemployment is, so I expect interest rates to continue falling. Falling interest rates and rising stock market--that smells of smart bond investors, stupid stock speculators and it will all end in tears for the latter, just like in Japan.

Tsachy Mishal said...

I agree but "someday" does not put food on my table.