Even In Bull Markets

Even the most fervent bears have to admit that there has been economic improvement. David Rosenberg actually sounded somewhat less grizzly in his January 4 Breakfast With Dave missive. But I want to remind readers that the economy is not the stock market. And even in bull markets there are steep corrections.

I believe the way this recovery has come about threatens to derail it as commodities and interest rates tick higher, but that is a discussion for another post. For now, let's assume that we are in a bull market. Bull markets are not straight up affairs and there are corrections within bull markets. Current levels of extreme bullishness have led to poor returns even in the context of bull markets.

The steady gains with little volatility in the market  have been historic. I would note that these type of rallies tend to end with very swift and sudden corrections. Many of the risk on trades like Gold and the Euro have reversed in a very hard fashion. Equities could do the same, even in a bull market.

4 comments:

Anonymous said...

Thanks for finally admitting that.

What you say is true. There are dips in a bull market. I wouldn't call them corrections but dips. Things are getting better. I believe the market will be MUCH higher in 2-3 years.

The best way to play this is to buy dips. Average in when you can. I would not be trying to short for a quick 1-2% trade. You could get caught be time.

Average in, in 2-3 years you will be rich.

Tsachy Mishal said...

I believe you misread what I wrote today and what I have been writing.

My recent bear case has been predicated purely on sentiment. I never said it was because I believe the economy is contracting.

I believe there are very large risks to the economy from the side effects of the steroid use. The most prevalent risks being higher commodity prices, inflation and interest rates.

Today's column said "let's assume" these are not issues and the bull market will continue. I don't assume that.

Tsachy Mishal said...

Was the 16% decline that started in April a dip? I am not saying we will see that but to say that there are only dips in bull markets ignores history.

Anonymous said...

Look at a 5 year chart. From the lows in March 2009 to present...yes, it was a dip.