I am accused by a reader’s letter of “clutching to a suicidal bearish stance” despite “unmissable signs of thawing in the credit market” and despite the huge rallies in global markets since their lows.
He is right about some of this. But I think I’d say, “sticking to” rather than “clutching to” a bearish stance and I’d miss out the suicidal bit.
A few years ago we were the only bears in town. That was uncomfortable – over the years there were many letters from readers begging us to swallow our pride and reconsider our stance on everything from the property market to the sustainability of oil at $150. Luckily we stuck to our guns.
Today, we have more company – to the extent that even some of the bulls out there are managing to be bears at the same time. Note Morgan Stanley’s latest suggestion, based, says The Times, on an analysis of 19 “leading bear markets”. The bank expects the FTSE 1000 to hit 6,000 within the next 12 months (the bull bit) before falling back sharply (the bear bit).
There are positive signs out there at the moment – a sharp rise in German industrial orders in June, for example, and mutterings of price rises in the UK housing market, but, still, many of the important numbers aren’t telling a happy story.
Consider the Baltic Freight Index – “one of the most sensitive indicators of world trade”, says Edward Hadas on Breakingviews.com. It has just had its worst week in ages – falling 17.3% – and is now 35% lower than it was at its 2009 high in early June.
Meanwhile, US consumers, the most important group of people in the world (in modern economic terms anyway) are still in a mess: house prices are still falling and so are personal incomes (-1.3% in June). No wonder US retailers reported yet more sales declines in July (-5.1%).
The fact that after such a great summer run even I have a slightly panicky feeling about being largely out of the markets (and that by the way includes the housing market) is less likely to be a symptom of a new bull market than a symptom of a massive bear market rally doing what they do best – dragging the last of us in at the top before destroying us. According to the Morgan Stanley report mentioned above, stocks rise 71% over 17 months in a typical “rebound rally”.
The upshot is this: we are desperate to be bullish – mad to join in the games of what the analysts at Evolution call “alphabet spaghetti” and to be as confident as the bullish minority in calling a V-shaped recovery.
But given the way bank crises usually pan out (see the writings of our misery-monger-in-chief, James Ferguson) we just can’t see this market as anything but an accident waiting to happen. To say otherwise might be nicely contrarian at this point (and regular readers will know how much we love to be that), but it just wouldn’t be honest.