Dateline OIN, Left Coast, Great Scott reporting: This just in - new scientific data studies, which began in early-May, reveal proof of global warming. Yes, it's true. Seems that daily high temperatures recorded over the last 70 days have become successively higher. Having reached a high in Redding, California of 118 degrees yesterday, scientists were alarmed at the stellar rise, which led them to conclude that global warming (at least on the Left Coast) is definitely here. In an effort to give time to citizens to prepare, the scientific community has pushed the alarm bell to warn us that life will never be the same if the current trend keeps up, especially in the coming weeks.
While it isn't clear what has caused the rise in temperature, one researcher with HEAT (Humans Escaping Ascending Temperatures), who wished to remain anonymous, cast the blame squarely on rich people. When queried further about the exhaustive research undertaken to arrive at this conclusion, he explained, "Plumes of exceptionally hot air are constantly expelled into the atmosphere from running air-conditioners. This incredibly hot air is ever- increasing and causes atmospheric temperatures to rise, which feeds on itself and requires offices, cars and homes to use even more air-conditioning - a vicious cycle. Clearly, the largest users of air-conditioners are rich people, as they tend to work in offices, have larger homes, drive SUVs, and thus can most afford it. Our only hope is that the stock market continues to tank and makes them feel not quite so rich. Perhaps then they will use their cooling units less, which will avert this pending global disaster."
Judging from current conditions, nobody is quite sure how long this will go on. But according to the same HEAT researchers, if the trend continues, we could see temperatures "approaching 212 degrees by late December". He added, "Expect human beings to spontaneously combust starting in early-March, 2003."
That's it for now. Back to you, Buzz
Great Scott, thanks for that startling report! Excuse me while I remove my tongue, previously firmly-planted in my cheek. Did I mention it was hot? 108 degrees in Reno yesterday, a new record I believe. Anyway, the above was a microcosm example of technical trends running amuck. As it applies to the market, there are a bucket of bears out there right now that see nothing but a fertile stream for biting dead fish stocks (tech), and a bucket of bulls too who still believe in the "buy and hold" theory. Trouble is, they are both on the wrong side of the trade. The other trouble is that they are probably one in the same people. Being right depends on your time line.
Let me quickly explain. Without going into much detail since I know our fearless Rocket Scientist and LEAPS editor, Mark Phillips will soon cover this in great detail, there are long term trends and short term trends, otherwise known as secular and cyclical trends, respectively. I believe that markets are bearish for the long term (secular) and nearing bullish for the near-term (cyclical) market - exactly the opposite from what most investors currently believe. And while the short-term looks currently bearish to many, I would suggest that the markets might be readying for a bullish reversal that could last longer than the standard 1-day rally we've become accustomed to. Yes, I'm still building an ark. But I'm also happy to grow some grain between storms. Hear me out on this, as we revisit one of my favorite "smart guys", Ken Fisher.
For those that don't know him, he is the founder of Fisher Investments in Woodside, California and manages $12 bln in investor capital, which has doubled from $6 bln over the last two years. Some of that is from earnings, but mostly from new inflows far as I can tell. Anyway, he is also one of the longest-running Forbes Magazine columnists, and son of legendary investor, Phil Fisher. He is not a market timer, per se, but his track record is, nonetheless, really good. This is a guy I pay attention too.
There's more. Ever hear of The Great Humiliator? That's Fisher's definition of the market, which states that the market's job is to humiliate and embarrass as many people as possible. In a strong sense, he is a contrarian. So, anyone interested in what he thinks constitutes a bottom? Me too.
Fisher breaks this down into three segments: Sentiment, Fundamentals, Technicals, plus other stuff nobody looks at.
For starters under sentiment, he lists the "Time Magazine Indicator". That's where Time and other major news publications start spouting, "Death of Equities", "Why Stocks Eat the Green Burrito and Suck Canal Water", or other such widely-disseminated and negative headlines. According to Fisher, Time has a nearly perfect contrarian record of calling pivot points.
Next, folks just plain give up on the market and don't want to own stocks. Few will be asking, "Is this a bottom yet?" They will already be already convinced that it is. This is accompanied by analysts shifting to the bearish side, which they really haven't done yet.
One other item falls under the sentiment heading according to Fisher. People lose faith in the Fed. Don't laugh. Not many have yet. There is still a belief that Greenspan has the ability to see around corners. Fisher explains that having believed from the start that interest rate cuts can shut down the bear, bottoms are formed when most folks believe that further cuts can't help.
Fundamentally (my favorite), Fisher looks for a major brokerage, bank, or other financial institution failure. Maybe some insurance companies are looking weak right now, but no major failures yet.
Bankruptcies are a completely different matter. Enron and K-Mart can certainly lay claim here. But Fisher bets that it happens to at least one major industrial company too. It could also be a segment of the market or certain class of securities that default too, like a major muni-bond issuer. By the way, taken a look at the utility index lately? Trouble on the horizon there - prices say so.
Furthermore, every industry and sector will fall in value. When the ones that have tended to perform well during a bear market finally lose steam too and can no longer claim "the last holdout" status (because there are no more holdouts), that offers the sense of a bottom.
What else? Bearish mutual funds will be all the rage. Earnings forecasts will fall and there will be no visibility. Bear market forecasters will figure prevalent in the news, which I presume is why current noted bear, Bill Fleckenstein, notes something to the effect that a bottom would be reached when CNBC goes off the air (!) Debt spreads will widen as junk bonds are treated like a bad case of leprosy - shunned. Auto sales should fall (happening now) and unemployment should increase by at least 1% from its pre- recession low (hit that and then some).
Technical items are few, but widely available to watch. At least one 90% down volume day will occur, the VIX will spike, and the oscillators will peg near the 0 line (on a scale of 1-100) in oversold.
Just a couple of other things that really don't fall into any of the above categories: 1. Fundamentals actually mean something and are sought in extensive research, then factored into the price. Speculation is unheard of. 2. Positive factors will be widely ignored. 3. Finally, when we are ridiculed for suggesting the future will be better in a few years, that will be the bottom.
Interesting, huh? I thought so too. We are "there", or approaching "there" on a quite a few different data points. But are we truly "there" yet? I don't' think so. But we could possibly be getting closer to a cyclical bottom, though I think the secular part has a long way to go. After all, CNBC is still on the air (big grin), fundamentals like P/E ratios still mostly stink, and people still hang on to Greenspan's every word.
One other thing - it is important to point out, as does Fisher, that not all indicators need to be present to indicate bullishness, nor is a single data point indicative of a market turnaround. Still the lesson is helpful.
Let's put the lesson to good use as the cyclical traders move into super-bear mode, which would perhaps ready us for actually bullish trading. Hey, we can dream can't we?
Make a great weekend for yourselves!