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-- Posted Thursday, 9 April 2009 | Digg This Article | Source: GoldSeek.com
Rick’s Picks Thursday, April 9, 2009 “Phenomenally accurate forecasts” The back-of-the-napkin numbers sketched out below are the handiwork of our good friend Doug B., a stockbroker who not only helped his clients dodge the bullet of recession/depression, but who also brought them some tidy returns on their portfolios last year. Doug got his clients out of stocks and heavily into Treasurys before the latter took off in 2008, and he has since redeployed the proceeds aggressively in municipal bonds. During our lunch together on Wednesday, he presented a very persuasive case as to why only an imbecile or someone enthralled by Larry Kudlow could possibly think the stock market has seen its ultimate lows. The fatal problem for that kind of optimism, he says, is, in a word, capitulation -- or rather, the absence of capitulation in a bear market that so far has been marked by more or less orderly declines the whole way down. Indeed, we should ask: How could the stock market have hit bottom if everyone who was on board at the top is still on board? 
And everyone is, if you parse some of the key numbers circled in red on Doug’s tablecloth pastiche (which, incidentally, he drew and labeled upside down). The first number notes that in January 2008, when the S&Ps were in the early stages of what was to become a devastating collapse, domestic equity mutual funds were worth about $6.5 trillion. Lo, a little more than a year later, in February 2009, we see that the value of these funds had fallen by about 48%, to $3.4 trillion. But guess what: Over that time, net redemptions totaled only 2%, or about $100 billion! What that means, explicitly, is that mutual fund investors have stuck with this bear market throughout the decline. Wholesale Dumping Ahead So, do we infer that guys like Kudlow, Suze Orman and CNBC’s talking heads actually believe this bear market will somehow be different from all others before it, with no exhaustion selling to carve out a durable low? We do not merely doubt this, we view such an outcome as very nearly impossible. This bear market will end, like every other bear market in history, with a wholesale dumping of stocks at prices that will make current values seem exorbitant in comparison. *** Rick's Picks publishes a daily trading newsletter for gold, stock, commodity, and mini-index traders 240 times per year. Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Thursday, 9 April 2009 | Digg This Article | Source: GoldSeek.com
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