Economist cover – a bearish climax?

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Eoin Treacy of Fullermoney points out that if any further evidence of a bearish climax was needed, one should look no further than the poignant cover of the most recent Economist.


Eoin adds the following commentary that also conveys my current thinking: ”Making decisions is stressful. It is much easier to do nothing than decide whether one’s current course of action is correct or needs to be altered. When urgency is added to the equation, we come under greater pressure because we often feel we do not have enough time to make an informed decision. Add money into the mix and stress levels increase. Leverage increases the potential for anxiety even further. In a deteriorating market, the perception of the need to make a decision grows all the time.

“Investors who sell as they reach their ‘pain threshold’ help to make up the minds of more people, which reinforces the trend. This helps explain why markets can accelerate lower. This is, at least in part, why so many investors in money-market funds were heading for the exit last week.

“However, occasions when emotions take the place of rational analysis are not good times to make investments decisions. It throws into sharp contrast the many Wall Street adages about buying when everyone else is scared. Listening to these prognostications when a market is rising and confidence is high is easy. Acting in the correct manner when sentiment is plumbing the depths is quite another. This is especially true when investors are quoting the definition of a stock down 90%, is one that was down 80% and halved.

“We have long held that the best time to buy our favourite themes was following a correction. While committing all of one’s capital to the market at current levels would be a rash move, building an investment position incrementally would appear to be a better strategy. We continue to run the risk that markets may eventually move lower. However, the facts are that many sectors have been sold aggressively and are rallying from support. That support is of at least near-term significance.

“The short covering rally that started on Friday is not over and most markets, particularly those that had the largest short positions. still have potential to rally further. However, it is only once the short covering rally expires and markets consolidate that we will see whether the September lows hold. Volatility remains high and we will continue to be presented with interesting buying opportunities.”

Source: Eoin Treacy, Fullermoney, September 22, 2008.

Related articles:
September – Off to a Rough Start
Words from the (investment) wise for the week that was (September 15 – 21, 2008)


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6 comments to Economist cover – a bearish climax?

  • Yes, it should be a medium term bottom at 1160 because resistance (2004) transforms into support. That’s the main principle of technical analysis. Financials should be the leaders…

    Best Regards,

    Dax Speculator

  • justin

    it’s great to catch a major news publication print a “scary” cover just before the market turns for the better. it makes you feel smart at their expense.

    but didn’t fuller post a similar story about the economist’s cover of a rapidly falling us$ in november 07.

    had you resisted the temptation to be oh so contrarian cool, you would of done very well following the economist’s us$ cover story.

    i don’t mean to sh#t on the “contrarian” view/perspective, i only wish to point out that one magazine cover is hardly justification for a “herd mentality”. we often remember the magazine covers that were proven to be very foolish, not the ones that were bang on.

    he says “We have long held that the best time to buy our favourite themes was following a correction.”

    correction??? the market is clearly down trending, any corrections are to the upside. no?

  • Frank Wordick

    Was it Baron de Rothschild, if I got his name right, who said that the secret to his success was that he buys when they sell and he sells when they buy? When I offered his advice up to my Northern British stockbroker, he replied that if you did that it was likely that you would get run over in the stampede.
    I have noticed that Fullermoney is one of those groups, like the Pring group, that seems to be always bullish. Maybe Fullermoney can start putting money into the market now, but I doubt most investors would. How does one handle these 300 to 500 point lurches up and down day after day? What about the anticipated degeneration in the earnings outlook? What about the massive meddling by the government in the market? In particular, what will Congress do about Comrade Hank and Comrade Ben’s latest plan to save the world? I must admit that I haven’t got a clue what this goofy market is going to do. How could anyone?

  • I totally agree with Eoin, except this is the time to invest your money long-all of it. We are not going lower. Thursday, not Friday was the start of wave 3, the longest and the strongest of a Rally likely peaking in September 2009. Although Financials, Real Estate, and Homebuilders have started down in a great Bear Market, we fist need a big bounce to compensate for the exaggerated drop. To see the Elliott charts and other discussions click on the link below to go Exceptional-Bear’s Archives….

    Eduardo Mirahyes

  • Global Stock Markets: The Deleveraging Process Continues…

    Prieur du Plessis submits: As I am traveling in Europe at the moment (see “Another town, another train…”), this week’s edition does not provide the customary review of the financial markets’ movements and economic statist…

  • This blog is really nice and informative. We are pleased to know this blog is really helping people and it’s our pleasure to post informative content on this useful blog created by webmaster.

    Here’s our market view on American stock market for 10th October, 2008

    The stock market has collapsed – since Sept. 19 the DJIA is down 25% and the S&P 500 is down 28% and down 42% from a year ago.

    How can this happen so quickly and so dramatically when so many good things have occurred? Oil is down to $82 a barrel; interest rates are very low; the dollar is up; valuation levels are extremely attractive among many blue chip stocks.

    What’s the real problem? The problem that is killing the stock market is a lack of hope about the future.

    Hope springs from optimism that is based on facts and history. Look at the history of America and really all of mankind. Life is full of setbacks and problems – that’s just the deal. But this too shall pass, as all scary periods have.

    Doomsayers have been around forever and their batting average is zero. Buying stock is based on hope – hope for the future. If one doesn’t have hope, they shouldn’t be in this business.

    So what is the best service we, as professionals, can provide for our clients?

    First, discuss the fact that we are dealing with serious problems but it is not at all like 1929. The Federal Reserve and the Treasury Department are doing many things to restore confidence in the financial system. There is global coordination in attacking the problem, which is lack of confidence.

    Tell your clients to look at history of our great nation and what has happened since 1776 when we faced very serious problems. The stock market actually rose steadily about six months after Pearl Harbor and until the end of WWII even though the outcome was not at all clear for several years.

    No one knows when the stock market will bottom and a new bull will commence. We do know that stocks and mutual funds offer the best values we have seen since Black Monday, Oct. 19, 1987.

    Almost all Americans have hope about the future of our nation, but they need help to control their normal fears. Team

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