“Know the enemy and know yourself; in a hundred battles you will never be in
peril. When you are ignorant of the enemy, but know yourself, your chances of
winning or losing are equal. If ignorant both of your enemy and yourself, you
are certain in every battle to be in peril.” — Sun Tzu (Chinese military
strategist, "The Art of War," circa 6th century B.C.)
The Stock Trader’s Almanac laid out the Bull’s case last week: Jeff and Judd are fairly Bearish into year’s end –they are looking for Dow 8500 — but they like to occassionally switch things up, and change perspectives. Its a good mental exercise, and can often be revealing.
Those in the Bearish camp — I call them (us) realists — need to do a few things prior to putting on their Bull tinted glasses:
"Suspend your belief that we are in a bear market. Ignore the fact that we are
in the worst six-months of the most dangerous section of the presidential
election cycle. Discount the inverted yield curve, the fact that we haven’t had
a serious recession in decades and the fed resembles a rudderless ship adrift.
Accept that the housing market is going to have a “soft landing”. Forget about
the missiles flying in Iraq, Israel, Afghanistan and North Korea."
OK, got that? Now you are good and bullish — and here is why the real Bulls think you ought to stay that way:
1) Corporate earnings have been good and no major company has had significant
earnings warnings so far. As long as the corporate balance sheets remain strong
the markets will push forward.
2) Iraq is not as bad as the media makes it out to be. Oil production is up
and the US has accomplished a lot of good things that don’t get reported. The
Bush doctrine may still prove successful and if it does, stability in the Middle
East will follow.
3) The economy is strong and inflation is in check. Moreover, the
Greenspan/Bernanke measured rate increases may slow the economy perfectly just
as it did in 1994-5.
4) This economy has weathered unbelievable shocks and has come out of it
relatively unfazed. The market has grown callus to hurricanes, war, terrorism,
energy prices and scandal to name but a few. Geopolitics and crisis no longer
impact the market as it has in the past.
5) The US consumer is inexhaustible. If $70+ barrel oil hasn’t changed
spending habits nothing will. Americans are rich and will stay that way.
That is the Bull case. If you agree with these 5 items, you should be long; Hell, you should be leveraged long. For those of you who disagree, you should be neutral at best, short or leveraged short when the time is right.
When should you become Bullish (for real)? Most likely, according to Jeff & Judd, when we pull our stakes and set up in the Bull camp, (and most likely will be in the
Stock Trader’s Almanac
June 20, 3006