Bearish or Bullish? Readers Respond
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 August 3, 2010
 
 *****Reader Mail!
 
 Fellow investor,
 
 While we wait for the first earnings report from Energy World Profits' Bakken oil pool companies, I thought I'd devote an issue to reader mail after all, I recently asked if you were bullish or bearish on the stock market. I was surprised to see that the sentiment of Daily Profit readers is perfectly balanced between bullish and bearish!
 
 Now, I'll share some of the responses so you can see what's got your fellow investors optimistic, or what's keeping them up nights…
 
 *****We'll kick things off with Dale N:
 
 I think earnings reports are more to do with developing and emerging market consumers than U.S. This market is a political market, not economic, and no one is Washington, Europe, Japan is in charge, or they simply don't have the ability to do what needs done. The market does not like not knowing so we have the high earnings and high volatility. This being my point of view, I am Bullish.
 
 It's often said that stocks do not like uncertainty. And we've seen several instances where uncertainty about a new law has been negative for stock prices. And then once the law is passed, and the uncertainty is lifted, the stocks directly affected are able to rally.
 
 Both the healthcare bill and financial regulation bill are good examples of this.
 
 But as Dale points out, political stalemate can be very bullish. When Congress is deadlocked, it can mean that no significant legislation can be passed. In other words, nothing will change in the near term. That's about as certain as it gets.
 
 I'm a little concerned about the mid-term elections in November. I can imagine that there might be a fair amount of uncertainty as voters head to the polls. But, if there is uncertainty and some weakness ahead of the elections, look for a strong end of year rally afterwards.
 
 *****Harry H. wrote:
 
 I am completely bearish on the economy as long as Obama is in the White House. No sensible business man will spend for the future with this socialist running things.
 
 I don't go so far as to say that the President is a socialist, though I can agree that he has made some moves that may not have been entirely pro-business. The moratorium on drilling in the Gulf of Mexico is a big one.
 
 No one likes to see so much devastation. But is the U.S. really in a position to curtail our domestic oil supply and add to the ranks of the unemployed by stopping new drilling in the Gulf? I don't think so. (though I'm happy to buy the land based oil stocks that I think will benefit from this decision).
 
 Still, I wouldn't go so far as to say businesses aren't spending because of Obama. In fact, we've seen some phenomenal earnings reports from technology companies that cite strong corporate spending as the reason they did so well.
 
 Hiring, on the other hand, might be stronger if the administration had done a better job of articulating its intentions regarding tax credits.
 
 ****Stephen is worried about commercial real estate:
 
 As long as the blogs talk about the Commercial Real Estate defaults, I'm Bearish for the rest of 2010.
 
 The bearish case for commercial real estate is well-established. Something like $400 billion in commercial real estate loans need to be refinanced in the next 2 years. Occupancy rates are down and defaults are up.
 
 But financial crises tend to sneak up on investors. And the problems with commercial real estate have been telegraphed loud and clear for the last 18 months at least.
 
 The thing is, hedge funds and other “smart money” investors love to buy when there's blood in the street. And right now, the demand for commercial real estate assets is so strong that prices are actually rising.
 
 Consider the recent sale of the Shops at Georgetown Park. The developers are suing each other over who actually owns the property. The current operator has defaulted on its mortgage. And the original lender is bankrupt. Still, the mortgage for the property sold for $0.90 on the dollar.
 
 Clearly, in the words of one insider, “[t]here are no toxic assets…” in commercial real estate.
 
 Hedge funds and even sovereign wealth funds like China's CIC are buying U.S. commercial real estate. And that means you could make 25% to 110% in the short-term on select commercial real estate stocks.
 
 For a Special Opportunity Report detailing exactly which commercial real estate stocks to buy now for 25%-110% gains click HERE.
 
 *****Russell G sees several reasons to be bearish:
 
 While not discounting a short term rally may now be taking place, I am definitely bearish for many reasons: 1) the interest rates are being kept low, sooner or later they will have to go up and that will present problems, 2) the debt of our country will continue to rise, and if this administration isn't removed (or prevented from taking further action) they will continue to raise taxes further preventing growth, 3) since 70% of our GNP is based on consumer spending, the consumer will be smarter that the administration and will further contract spending, 4) if the democrats hold the House and Senate for two more years, they (the Dems) will either destroy the country or their will be a revolt of some kind to retake the country. That leaves the country to be 5) very venerable to attacks and further illegal immigration problems, further hurting the economy. Will stop here, am getting depressed writing this.
 
 I see political agendas cited repeatedly as reasons to be bearish. And it's true that politics may be the single most important factor for the direction of the stock market. I'm also quite sure Russell is not the only one who feels this way.
 
 At the same time, the stock market has put in an impressive rally since the March 2009 lows.
 
 Also, I'm definitely one who is concerned about the future of interest rates. I feel confident rates won't raise anytime soon (ie: at least 12 months), but I am not confident in what it will mean when rates do rise. One would hope that an interest hike would coincide with solid growth, but a rate hike campaign to counter inflation would be a scary thing.
 
 *****Ed R. writes:
 
 I am a member of your Small Cap Investor Pro. I'm basically a beginning investor with a lot of years of investing on my own...with plenty of help from newsletters, etc. I think that the stock market will be a roller coaster but edging higher through the end of the year. I am on the side of the bulls.
 
 I'm glad to hear that you're getting from Small Cap Investor Pro. And I have to agree that the stock market is likely to be volatile. I too am expecting higher prices by year's end.
 
 *****LLV wrote:
 
 As a dividend investor I'm am most likely classified as being bullish on this market.
 
 I assume that a dividend investor is bullish because of the huge amount of cash in corporate balance sheets and the trend toward companies raising their dividends.
 
 And I agree wholeheartedly, there's a lot for a dividend investor to like right now. Because not only does a raised dividend boost your income, it also boosts the stock price as more investors are attracted to the higher dividend.
 
 *****Jim's got a bullish laundry list:
 
 I'm leaning bullish,
 
 1) the previous two quarters were draw it up then slam it down
 2) the end of the world crowd is crowing loudly, but the market climbs a wall of worry
 3) retail is always horrible in the summer, then picks up into September
 4) the election is just over three months away, we should have good visibility no later than October
 5) the market has churned sideways for the past 12 months, and should be ready for good economic news
 6) any resolution of the Bush tax cuts will need to be before the election
 
 These are great insights. I agree on all counts and I do think the Bush tax cuts will be left virtually intact.
 
 ****Chris is walking the tightrope:
 
 I am bearish on the economy but very bullish on the stock market. The reason is simple – supply and demand. The last ten years have been extremely good to the top 5% in wealth. Thanks to Bush era policies, they have more money than ever to invest. Unless some other investment comes along to siphon that money away (like real estate did), the default location is the stock market. So, until that alternative investment comes along I expect the stock market to do very well.
 
 As I've noted in the past, one reason interest rates will stay low is to make investing more attractive than simply buying Treasury bonds. That alone could keep a solid floor under stock prices.
 
 Also, the Fed will defend the stock market with liquidity if it has to. In the event of a stock market decline, I would expect a quick reaction from the Fed.
 
 *****E. Regan echoes the political theme:
 
 I am neutral on the stock market until we know if we have divided government or single party government after the elections in November. I believe sentiment is being driven by very loud politics. I'm hopeful of significant policy changes after the new congress is installed in January. Consumer and investor confidence should improve if the current policies are neutered.
 
 *****Dale C is worried about taxes:
 
 Short term bullish but cautious, longer term (4th Q) bearish – definitely bearish the 1stQ next year as taxes may weight heavy on consumer and small business
 
 I still the Bush tax cuts will be extended. Now is not the time to take money out of people's pockets.
 
 *****Frank Y. wrote;
 
 I see no catalysts on the horizon that would support the contention of earnings staying at currently reported levels or increasing. Also, exports do not look very promising. I am bearish.
 
 Agreed, earnings growth will slow at some point. And if that happens before hiring picks up, there could be trouble.
 
 As for exports, I suspect we've just seen a medium term low for exports as demand from China and Europe weakened in the second quarter.
 
 *****James G. sees a rangebound market:
 
 I think that the DOW will trade in the range of 9500 to 12000 for the next couple of years unless something big happens. So I would call myself slightly bullish.
 
 This mirrors my expectations as well. I see a rangebound market for the foreseeable future. Investors should be ready to buy extreme weakness and sell strong rallies.
 
 *****Jim from Pittsburgh wrote:
 
 Earnings will begin to deteriorate along with the economy (Very little top line growth except for international companies and even that will begin to deteriorate) and as businesses run out of ways to cut costs those forward p/e's will become higher than current p/e's, not lower!
 
 This is an important dynamic to watch. In general, analysts can only use historic growth rates and project them out into the future. But at some point, real growth must fall short.
 
 I think many investors expected that to happen this earnings season. They've been wrong so far.
 
 The only antidote for this higher employment and the subsequent increase in demand.
 
 *****Finally, Denny F. writes:
 
 Bullish...
 1. Two years before an election
 2. 60% of stimulus still unspent
 3. Insurance claims are high in the P&C field (Insurance stimulus)
 
 *****I'd like to thank everyone for their comments. I continue to be impressed by the well thought out points I always hear from Daily Profit readers. Please feel free to write me at [email protected]
 
 Until tomorrow,
 
 Ian Wyatt
 Editor
 Daily Profit
 
 
 P.S. As a number of readers mentioned, this is going to be a market requiring patience for buy and hold investors. But if you're interested in quick returns through easy trading, take a look at Jason's new TradeMaster Boot Camp. It's a free 5-part video series on how to trade for profits in a market like this one. Registration is open and free. CLICK HERE now.





Posted 08-03-2010 11:48 AM by Ian Wyatt