Overrun by the Bull?

Bennet Sedacca  Mar 13, 2009 1:12 pm

Overrun by the Bull?
 
Once again, macro trumps technicals.
 

 

My main reason for being long equities was purely a technical/sentiment call. But many of those who were thinking about liquidating their portfolios just 10 days ago turned around and asked me what to buy and how long I thought the rally would last.

I must confess: My honest-to-goodness answer is/was "I have no idea." But the change in sentiment was what quickly caught my attention.

Furthermore, TV commentators and others turned bullish awfully quickly. The real reason: Macro trumps technicals.



I rarely watch financial TV shows, but I tuned in today, and one thing I've noticed today is the extreme bullishness about credit. This is very alarming to me. With credit market debt/GDP about to sail towards 400% -- as of December 31 (and this is before GDP was going to drop and before all of the recent issuance), it was a stunning 370% -- why on earth would anyone buy 30-year subordinated debt of financial companies? I could care less if they yield 8%, to be frank.

So much for deleveraging. In fact, the economy is getting more leveraged.

Hasn't anyone noticed (except Minyan Peter, of course) that each time a "bailout" occurs, we eat further and further into the capital structure? It explains to me why many of the top core bond managers -- sorry, can't name names to protect the innocent -- were down 15% last year and are already down 5-10% this year. They don't understand macro-economics.

This is yet another sign of trouble.

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Comments (4) See All Comments »
03-13-2009, 1:22 pm
Very bearish last week, yet now everyone is very bullish and all is rosy and nice in the garden? The huge machine that is the US economy is suddenly back to boom times again?
Uh, in just a mere few days all these problems have been sorted? Not
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03-13-2009, 1:39 pm
Bennet,

Good piece.

Also, one would expect debt/GDP to rise as GDP fell. This is exactly what happened in the Great Depression. In 1929, it was approximately 2.0, shooting up to 3.0 in 1932.
As you point out, our
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03-13-2009, 2:51 pm


The abyss has its limits as hope springs eternal. While the dead cat has no bounce it does not mean the bull can't break wind to let investors know he is still there. Hope against fear as the fear is about burnt out and the Tin Ma
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03-13-2009, 5:54 pm
Mr. B, the problem with an international rating agency remains the same as with national ones. When people depend on others to tell them whether a given investment is a good idea, without doing their own exhaustive homework, then manipulation, corru
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