WSJ column on “Bears on Street”

Last week, I noted there’s an old expression on Wall Street: 

"They don’t ring a bell at the top."   Actually, they do; Its just hard to see at the time.

The credit or the blame for today’s sell-off goes to a front page article in the WSJ last week "Behind Surging Stock Market: Old-Fashioned Economic Boom" – was pretty much a gong ringing.

So perhaps this column in today’s WSJ — by the same writer as the Old-Fashioned Economic Boom piece, no less — might be implying the contra-position:

Bears on Street Ask ‘How Far?’ Amid Pullback

Several things make investors worry: At the top of the list is inflation, which some analysts fear will force the Federal Reserve to keep raising interest rates into summer or even autumn. Past Fed rate increases sometimes have gone too far, provoking shocks such as a bear market, a real-estate collapse or a recession.

In each of the past two months, "core" inflation, which excludes food and fuel, has increased more than 2% from a year earlier. That is above the level Fed officials have indicated they consider acceptable, suggesting the Fed could keep raising rates to cool the economy and thereby tamp down inflationary pressures. Fed officials have indicated that they are determined not to create an economic shock this time, but the inflation numbers may put them in a bind.

What made the stock market boom this year was the prospect that the Fed would stop raising rates at a time when the economy and corporate profits continued to surge. Analysts currently expect profits at big companies to rise 14% or more in the second half of this year. If the Fed is forced to cool the economy further, profits could suffer, and the Wall Street euphoria could fade further.

Since early 2003, when anxiety over the Iraq war knocked stocks down, the Dow industrials haven’t fallen 10% from a high. Many consider such a decline overdue. They note that the April and May stock gains were led by a limited group of stocks that were thought to benefit most from low interest rates and a strong economy. Such narrow gains often are a sign that trouble could be lurking.

It would be quite ironic if this article were to help put in a short term low . . .


UPDATE May 23, 2006 9:14am

The NYT joins the parade:

Bulls Retreat Worldwide as May Rally Turns to Rout
NYT, May 23, 2006   

Rally turns to a rout?  Gee , thanks for the heads up!


Bears on Street Ask ‘How Far?’ Amid Pullback
May 22, 2006; Page C1

Bulls Retreat Worldwide as May Rally Turns to Rout
NYT, May 23, 2006

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What's been said:

Discussions found on the web:
  1. Gregor Samsa commented on May 22

    Barry, Enjoy the moment. Quit trying to trade the bounce of a regime change. Short term low? Like the NIKKEI, the Kospi? Come on, baby.. Enjoy the ride as Soundgarden sings!

    “I know I’m headed for the bottom
    I know I’m headed for the bottom
    I know I’m headed for the bottom
    But I’m riding you all the way
    Yeah I’m riding you all the way
    I’m riding…”

  2. John Hunter commented on May 22

    I thought the same when I saw the headline and first part of the article, but if you follow it into the inside pages, the last third of the article is actually pretty bullish. For an article proclaiming “how low can you go”, it was hardly a contrarian indicator.

  3. trader75 commented on May 23

    On this subject of missing bounces and the recent selloff, it would be interesting to see the logic spelled out of what might be happening behind the scenes. Here’s my humble attempt.

    It’s not overly surprising that the ‘bounces’ so far have been anemic and short-lived, because too many traders have been looking for them with trigger finger at the ready. When ‘everyone’ is trying to catch a bounce, the bounce inevitably pulls a Godot — turning the bulls into Rosencrantz & Guildenstern.

    But why does this happen? There has to be a rational explanation, other than bad juju or fickle market gods…

    Perhaps because the group of folks looking for the bounce includes longs who haven’t cut out –fund managers up on the year watching their P&L bleed maybe– and they are selling into the pockets of upside movement a little at a time as they lose faith. The pops are dampened by nervous nellies trying to lay off their exposure.

    Here’s the nifty part of the Rosencrantz & Guildenstern phenomenon. Maybe the bullish state of things prior to the selloff is simultaneously responsible for the ‘here comes the bounce’ view AND the overhead supply that is damping out the rally. Once the market turns, supply is guaranteed to become a dead weight… but when the turn is fresh, that buy-the-dip mojo is still strong.

    Kinda like Sherlock Holmes and the dog that didn’t bark. If markets are strong enough for the longs to be fully loaded near the top, they are also strong enough to fuel the ‘bounce view’ even as overhead supply keeps it from happening. (Perhaps I just needlessly repeated myself.)

    Anyway, it all winds up copacetic as ye olde sadistic market works to apply max frustration to the max group of people, as usual, with no bad juju or negative karma involved. Just plain old supply and demand dovetailing with psychology in the context of an expected value / parimutuel type system.

    That’s just a theory anyway. Could be wrong…

  4. Alaskan Pete commented on May 23

    Hmmm. Let me think about it. Yup, I’d say Roach takes the prize. His capitulation..based on empty political posturing at the G8 no less, was like a air raid siren. Screw the bells.

  5. todd commented on May 23

    that stuff actually works! what’s the old adage? “when everyone is yelling, you should be selling. When people are crying, you should be buying.”

  6. Groove commented on May 23

    I read where the Indian authorities are on suicide watch due to correction they are experiencing. Public short interest (dumb money) is at record levels, apparently. People are fleeing to bonds. VIX is spiking. People are talking about a new 1987 crash. Seems to be a fair bit of fear for how little we’ve dropped. At least investing is a little more exciting now. Yawn…I think I’ll got to bed.

  7. Michael L. commented on May 23

    We’ve had a number of thin reeds as someone called them. Roach and Bernstein throwing in the towel, the Economist cover, no general magazine covers as yet although there were lead stories on the evening news shows about Dow 12,000.

    Surprised to see the lead story after the news on the Today show about the market selling off. But it wasn’t like that immortal day when Kosmo Cramer and Jim Grant were on the steps of the NYSE and Grant said sell everything.

    Still looks like another leg down for now. And VXN closed above the open.

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