When is a rally not a bear market rally? How high do stocks have to go before they are no longer a "big losing proposition?"
I pose these questions because a very, very good money manager, Jeffrey Gundlach, told a pretty sobering tale yesterday of a market that has 2% upside and 20% downside and is simply rallying the way stocks tend to rally in a bear market.
Now, I know Gundlach's DoubleLine Total Return Bond Fund has beaten 99% of all its peers, according to Bloomberg data; but like most bond fund managers, he does tend to paint stocks in too broad a brush.
And while it is true that many stocks probably have a lot of downside, I am envious of those who just made 30-50% in the energy spike and sure wish that I had.
More important, I think that we have been in a roving bear market for ages. So many stocks are so well off their highs that the fact that they could have a small bounce off the bottom isn't all that impressive yet.
I do not differ with Gundlach when he says that there will be real issues with indebted oil companies and with the banks if oil doesn't go higher. However, each time oil has a spike it seems that another handful of oil companies come in and offer stock that is instantly gobbled up. At the same time, many of the oil companies out there sell oil futures to bring in extra income.
When you consider the huge capital programs that are being cancelled worldwide, hundreds of billions of dollars' worth of them, it is difficult to think that we will go down to $20 as Goldman Sachs recently predicted.
All that will happen, though, if Gundlach is right that there is too much oil sloshing around, will be a return to the rolling bear market in banks and oils and a surge back into the consumer staples and perhaps another run at the restaurants and retailers. In other words, the money isn't leaving the stock market, it just keeps rotating among sectors.
Who knows, maybe the next roving bear will trigger a bull market in health care, because Sanders will be out and Clinton can tack a little more toward the industry. Or perhaps we get a merger or two in the group? I can't believe the major drug companies aren't going to make a move soon on some of these beaten-up biotechs. It makes no sense not to.
I just don't want to lose sight that a guy like Gundlach isn't really addressing you, the investor, when he says there is 2% upside and 20% downside. He's trying to make the point that the stock market might be more dangerous than you think. If that's the case, then it means more people will buy the stocks of Clorox (CLX) and Wal-Mart (WMT) and Kimberly Clark (KMB) and Coca Cola (KO) and fewer will buy Transocean (RIG) and Diamond Offshore (DO) and Ensco (ESV).
That makes sense to me.
But when you are running $56 billion the way Gundlach is, you don't have time for niceties, niceties being individual stocks. He's making much broader, sweeping pronouncements that might not have the value you ascribe to them.
In other words, he could be right about some stocks for certain. However, as we have seem time and time again, when someone's right about a certain sector of stocks that doesn't make him right for other sectors within the broader S&P 500.
Or, as I like to put it, there's always a bull market somewhere, and I promise to try to find it just for everyone who reads this column.