Bull or Bear?

[dn4911]

From this week's Barron's

Rallies in bear markets, in any case, are among life's more pleasant inevitable interruptions and, as we've just seen, they can be pretty darn vigorous, the better to tempt the unwary and set them up for an even fiercer shellacking. Which is why we believe that any bounce worthy of its name that rekindles speculative fancies should be approached with extreme caution and relished as an opportunity -- to sell.

Up and Down Wall Street - Barron's Online

[dn4911]

I wanted to comment on Ron's very good article: recession or no recession.

We had this very debate in my house last night. As a result of our discussions, and to answer that very question, I Googled "Are we in a recession?"

The answer we reached after research and discussion was that by any objective economic measure, we are NOT in a recession.

From an investor's perspective, however, it doesn't matter if there is a recession or not. If the market perceives that there is or will be a recession, then it could result in a continued down trend (read "Bear market"). THe real question then should be as follows:

1. Does the Market perceive we are in or will soon be entering a recession?
2. If so, will it continue to react, over the short term, negatively?
3. What factors will accelerate the perception of a recession?
4. What factors will cause the mkt to change its perception?

This week's Barron's contains articles both ways. There is an article from a contrarian who believes absolutely that the market believes we are entering a recession and has priced that into the market. He believes now is a golden opportunity to buy. As soon as the market realizes it is not doom and gloom, the mkt will take off.

Other articles, one of which I quoted in the previous post, believes that the financial sector will continue to go downhill as many mortgages reset and institutions and investors go belly up or at a minimum write down their assets.

My view, at the moment, is that it is too soon to invest in domestic equities that rely in large part on the U.S. consumer, including the financials. There are too many shoes to drop that will feed the shorts and keep negative earnings in the headlines.

I believe last week was a short term rally in a bear market. The European mkt is also down. However I do not believe the world economy as a whole will suffer. We are entering a new age in which a recession in the U.S. does not doom the rest of the world markets.

I am taking some profits and on dips buying mining, dry bulk shipping, and US industrials that are strong and should continue strong. I am trying to focus on stocks that have secure dividends.

When the uncertainty of the SIV and Subprime issues has played out, and not before, the market should roar. That is when the Market will have appreciated the fact that we are not, and never were, in a recession. By that time I believe the sectors above should be well up over their current levels and I will rotate into the domestic markets.

In summary, while I agree with Ron that we are not in a Recession, as long as there is a perception that we are or will be, the market will trend down. Therefore we need to take perceptions into account when investing.

[Gary]

I really like your thread DN. I think it is one that is often debated amongst friends. I believe that a recession is often as much a state of mind as it is a reality. By that I mean we are often talked into a recessioin, however it takes several quarters of growth before we start thinking "What recession?". Any way thanks for the GOOD THOUGHTS!

[ron]

dn tx for starting this thread. I totally agree with your point in being prudent when investing. Absolutely - it is a 'must' for every single responsible trader - especially, under weak mrkt conditions.

I think , what we have been presented with - in the last several weeks, it is a false sense imo of extreme economic instability. Mrkt instability, should be based strictly on clear indications of unsustainable economic growth as oppose to alluding hypotheticals, and of course, the stock mrkt will respond (as it has) by way of creating doubts in expectations concerning corporate profits, since directly related to the state of economy. Yet, the ratio of positive to negative earnings estimate revisions, continues to remain almost unchangd - indicating that brokerage analysts are not significantly lowering their profit projections overall. - There is a disconnect here. While there are pockets of weakness there are also pokcets of strength.

This whole case of mrkt weakness is being based on the subprime debacle.... Again, the subprime issue, there's no denying, remains accute and must be dealt expeditously however, as long as we don't get a credit freeze and enough liquidity gets injected into the system...this is very much a containable and curable problem. Annd again, when was the last time microeconomic risks completely disappeared?!! - it will always be there, granted, not at these levels...but in a sense the fluctuation has always been there.

[Grassroots]

Not taking sides one way or the other, but last night on the NBC nightly news they had an piece on recession and the Winnebago industry and apparently it is a marker for recession. This article doesn't bring as much "gloom" as the TV piece did but wouldn't it make sense that Winnebago sales are down on the sole reason of increased gas supply and not a coming recession?

Bloomberg.com: Exclusive