I just closed out a trade for a nice win, so why do I feel grouchy? The market is up with energy, there’s no bad news out there to spoil my day, and, yet, I feel the need to go after another well respected doom and gloom screamer. I know, I know I shouldn’t but I cannot help myself.
I know and you know (hopefully) these bears keep throwing mud at the wall knowing that eventually some of it will stick. Sometimes, the mud sticks in huge gobs and then they become famous for their ability to “predict” the future. Once they become famous, my guess is they keep up the bearish predictions to keep the light on. Maybe they believe them, but sometimes one gets a sense from their words they are hedging their bet just a bit.
- The economist and fund manager known as “Dr. Doom” for his contrarian predictions during bull markets believes the stock market in the United States is overdue for “a correction.” In other words, it’s headed down. But, it won’t take the quick way down. The market may very well continue up. Well, for a little bit.
Okay, so the market will continue up, but then it will come down. Not bad for a prediction, but it gets better.
- “There’s a chance that this market could behave like 1987 where the market went up first 40% from January until August 25 [1987] and then collapsed by 41% in two months,” says Mark Faber.
Wow! Now that is going out on a limb. The words “there’s a chance” really nails that one down. Now, to make sure we get it, he trots out the two other recent market busts.
- That’s not the only example. He cites boom and busts in the NASDAQ 100 in 1999 – 2000 and oil in 2008. The speed at which the US markets have risen rings alarm bells for Faber.
The speed at which he and his ilk are given airtime rings alarm bells for me. Sure, I get it that we need contrary analysis, but are his words truly analysis? In fact, let’s look at the context for his prediction.
The year 1987 coincided with the S&L financial debacle and the peak of a real estate bubble. The 2000 market ended a true bubble in tech stocks. That was real mania. Does the oil market in 2008 even deserve mentioning this context? Back then, Goldman Sachs and others were telling us oil would go to $200, so we should buy some and then buy some more. Talk about pump and dump. That was a real scandal. Keep in mind, in all three cases, the economy was headed in the opposite direction of where it is headed today. And that brings up another point – should you listen to the bulls who push their agenda?
- Goldman Sachs lifts its forecasts for the S&P 500, as David Kostin and company now say they expect the index to gain 5% by year-end to 1,750, 9% to 1,900 in 2014, and 10% to 2,100 in 2015.
What value does the above have? The analysts at Goldman Sachs tell us something and we should believe it? In fact, I would ask: Do they believe it? They are going out to 2015 on their forecast? Sure, I can buy 5% more on the S&P by year’s end, but 2015? A question that pops into my mind is: why are they even saying it? Is there a motivation, as there appeared to be in 2008?
If you are learning to trade the market, you have to learn to ignore these folks. Take all the “stuff,” good and bad, with a grain of salt. No, it is better to stick with analysis that has real meaning in context, data that is rooted in reality, not stately pronouncements from positions on high or predictions from those who sling mud hoping it will stick.
- AutoZone Inc , the largest U.S. auto parts retailer, reported a better-than-expected quarterly profit as U.S. customers undertook car repairs after a prolonged winter.
The above is one more example that the US economy is still ticking along, and at this point, there is no reason to believe the ticking will stop. In fact, there is ample reason to believe it will tick faster. Thus, in this context, Goldman Sachs is probably right in their S&P prediction through the end of the year.
Yes, the market might correct to rebalance and consolidate, but will it collapse? Show me something other than flying mud, something real and tangible and I will consider the possibility. Until then, I will keep making money in the market.
Trade in the day; Invest in your life …
