Lately, when I appear on CNBC and Fox Business, I seem to face an increasing number of bulls who claim we’re not in a bubble and that we could see the markets explode upwards in the weeks and months ahead. And they can list countless reasons for their view.
What I’m seeing less and less of are those pundits willing to be bearish… and those who have amended their point of view. “If we get a correction,” they say, “it will be minor… 10% or so.”
Does this mean the bulls are right and the bears should crawl back into their cave?
In fact, it means the complete opposite. The fact that bears are capitulating left, right, and center is a very bearish sign!
You see, it’s hard to fight a bull market being driven by endless Fed and central bank money printing. And it’s even harder to fight the U.S. stock market, especially when it’s become the only place left to find decent yields and enjoy gains. Our economy and markets will face the perfect storm between now and 2019.
But it’s when more and more people get sucked into the euphoria that you know we’re reaching the peak of the bubble. When even the die-hards begin to doubt themselves, that’s when the situation is the most dangerous.
So let’s look at who’s turned tail…
The first uber-bear to don horns was Meredith Whitney in March of 2013 when she claimed she was more bullish on U.S. equities than at any time in her career. This coming from the most prominent forecaster of the crisis at Citicorp, and in the banking sector, in October 2007. She also predicted a major wave of muni defaults in 2010 that didn’t come to pass.
Next was Noriel Roubini, who also warned about the banking crisis before it occurred in 2008. He turned bullish on U.S. equities at the very end of 2013. However, unlike Whitney, he’s still warning of weaknesses and headwinds especially in Europe. (Roubini forecast a painful deleveraging in 2013 that never happened.)
John Thomas, of The Mad Hedge Fund Trader, was clearly bearish between 2008 and 2011. I debated him at a luncheon in Australia in February and he now says we’re on the verge of the next “Roaring 20s” economy.
Now that’s a position I would bet my grandma’s dentures against!
There’s no way such a boom will happen, not least because of the extreme debt levels around the world and the worsening demographic trends ahead.
Ralph Acampora, one of the most prominent technical analysts, turned bearish on U.S. stocks in August of 2013, just after the Dow had hit 15,800. Before that, he called for a 20% correction. The markets dipped lightly, then headed up again and Acampora threw in the towel.
I tell you all of this not to mock these people — I respect each and every one of them — but to highlight two important principles of bubbles (I cover all 10 in Chapter 5 of The Demographic Cliff, page 146):
Principle #7 states: Bubbles become so attractive that they eventually suck in the skeptics.
Principle #8 states: No one wants the “high” and easy gains to end, so we go into denial as the bubble evolves, especially in its latter stages.
So what we have now is almost all economists and analysts, including those who were once bearish, mulling around in the bull pen. And like I said, that’s exactly what you would expect to see in the very latest stages of a bubble.
That’s why it’s so important you stay as objective as possible. Don’t let public opinion sway you.
We could reach the top of this bubble as soon as late-August. The potential gains still available to you are now only about 2% to 4% while the potential downside is approaching 65% or more.
This is not a time to invest blindly. Finding and sticking with a good investment strategy is the only way to go… especially now.
Remember, if it looks like a bubble, walks like a bubble, and quacks like a bubble… it’s a bubble.
P.S. There are a few of us who remain entrenched in our bearish camp… There’s Robert Prechter, Robert Shiller, and George Soros, to name just three. Soros just made a $2.2 trillion short bet on U.S. stocks and he is rarely wrong. I’d suggest you listen to these guys, as well as us.
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