Nevertheless, despite the enthusiasm and extraordinary price momentum, I anticipate that my next move will likely be to meaningfully increase my short exposure (but only on a momentum break). Market is beginning to launch into the giddy phase, in which rose-colored glasses have replaced the camera with a stick – GoPro (GPRO), which is now out of favor – as the most preferred accoutrement. In these times, Leo Reisman’s “ Happy Days are Here Again” and Ethel Merman’s “ Everything is Coming Up Roses” are minor songs/players and might have to move over to the melodious and more ecstatic and certainly more current, Pharrell Williams’ “Happy.”Īrguably, Mr. And today, the absence of shorts – unlike in previous periods of market strength – will not buffer or cushion a market correction or bear market. To be sure, the short community is somewhere between decimated and non-existent. Given the consistency and steadiness of the market rise, few are willing to make a negative bet.Īs mentioned recently, short funds have become a pimple on the back of the complex of exchange traded funds. Indeed, the confluence of the aforementioned fundamental, sentiment and valuation issues can potentially be considered the Golden Triangle of the Bear Case. dollar and slowing global growth).Īdding to the fundamental issues (estimated 2015 S&P profit forecasts have consistently dropped from $137/share to $119/share) is that sentiment is elevated (as the bull market in complacency has hit a new high) and many of the most important valuation methodologies are seriously stretched (including Shiller’s CAPE, Buffett’s Market Cap/GDP, etc.) improving price earnings ratios) despite a material decline in corporate profit expectations (caused by lower oil prices, a stronger U.S. I have fully discussed what I have missed in a mea culpa, “ The Burden of Truth” - and that has mostly been market participants’ willingness to pay more for a stream of profits (e.g. Thus far, the market is indifferent to what I have seen as a deterioration in the macroeconomic trends and to rising geopolitical threats. My market view remains negative and I am positioned defensively. (As Grandma Koufax used to ALSO say, “Dougie, it could be better, but it also could be worse!”) Is The Golden Triangle of the Bear Case Emerging? But I am not singing the blues either, as a number of my longs and shorts have done well this year.
I am substantially less happy than the crowd. Grandma Koufax used to say, in times like this, “Mr.
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