Thursday, February 5, 2009

Private Client Commentary - biggest one point day

Dear Clients,

All I can say again is Wow! Yesterday saw the biggest single day point increase in the history of the Dow. And of course the question today is; is it sustainable? Has the bear market finally done its part in bringing the excesses to light and helping purge them from the system - and are we now ushering in the next bull market? Or, is it a sucker's rally - where the market surges, taking investors with it, only to sell off back to the bottom - breaking hopeful hearts along the way?

Of course you know, I don't know. Timing the stock market is something no one has ever done with any, investment worthy, degree of accuracy. And anyone willing to go on national television and tell us, with great conviction even, that they know where the market is headed, has let his ego run wild with his common sense. I woke up this morning to Bloomberg Television just in time to hear that three "major market strategists" (as opposed to minor market strategists) are indeed labeling this a bear market rally. Two simply stated that, due to the coming deep global recession, investors must sell into this rally; for we are no where near the end of the pain. The other was so bold as to even predict precisely when the market will bottom, which, if you're interested, is mid 2009. As I've illustrated many times in the past, not that these guys are wrong, but even the most popular gurus seldom guess correctly when it comes to forecasting the market.

Now, having clearly stated my position on market timing and my opinion regarding those fortune tellers who would have us bet our portfolios on their predictions, I will say emphatically, that I would not keep these primetime palm readers from making their prognostications for all the tea in China. In fact, if it is indeed time for this market to turn the corner, these guys are essential to making that happen.

Think about it, if everyone turned bullish at exactly the same time, every drop of cash on the sidelines would rush in at once, and I'd guess the Dow would settle somewhere north of 16,000, with nothing to keep it there. And trust me, that's not what we need! We need pessimists, and we need them to remain pessimistic, and we need people (not us) to continue to listen to them. That will help ensure that the liquidity the next bull market needs to move higher at a healthy (sustainable) pace stays in place. There's the old adage, "bull markets climb a wall of worry", implying that they are born, and advance, in the midst of very bad news - and again, we need the doom-sayers to keep things relatively negative, at least for a while.

So here we are, and like our kids suffering through the long drive to Grandma's house, all we want to know is - are we there yet? And all I'm saying is; if we are, we want to keep the air conditioner running and leave the ones sleeping in the back seat (dreaming that they're still on the road) there for as long as possible - while we go inside and enjoy Grandma's apple pie.

And lastly, please do not take this as my prediction that the bear market is finally over. I honestly do not know!! And as I've said many times before, it's not important that it end today, it's only important that this bear market end after, and only after, it's finished its work.

Have a great week,

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