Suckers’ Rallies and Summer Storms
As I’ve written before I’m a contrarian by nature, but I know myself well enough to recognize and account for my own biases. Over the past few weeks I’ve been relieved to see the stock market rise and the economy overall appear to stabilize, but the stability hasn’t felt real. It has reminded me of a break in the clouds that often appeared in the middle of a butt-kicking Midwestern thunderstorm in the summer: the break in the rain and lightning is nice, but the clouds to the west are black and haven’t disappeared.
I just found a Bloomberg article that supports my intuition.
The difference between the American Association of Individual Investors Bull Index and Bear Index surged to 5.6 as of April 2. When the reading rose to 11.5 in November and 13.6 in January it coincided with the end of “bear-market rallies” of at least 21 percent by the MSCI World Index.“What that’s going to show is that people always want to look at the glass as if it is half full,” said Martin Marnick, head of trading at Helmsman Global Trading Ltd. in Hong Kong. “Using common sense you know what that general trend is. We’re in a recession and this is not the start of a bull market.”
After the 2001-02 recession (which lasted well into 2003 in the Philadelphia area) the devastation was quite apparent in the form of bankrupt companies and empty offices. Today in my area it doesn’t look all that bad – yet the economy is supposedly worse off. Granted my intuition is based on one small metro area of the country, but except for the housing market things don’t look as bad as they should.
In St.Louis the air itself seemed exhausted after the thunderstorm passed. Today I sense that there is way too much optimism to justify the end of the bad economic times. Either things aren’t as bad as we think (doubtful given the statistics) or the clouds are about to close and fill the air with torrents of rain.
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