OK, I've been a bear. It's been right. The market's been horrendous.
But we have to talk about something tonight because when I am recognized as being a big bear -- as USA Today did today -- and you are beginning to hear everyone talk about a bear market, you need to know what would make me more constructive.
First, this isn't easy. There's so much to dislike. We have the Fed doing all the wrong things. Think about it. One day Fed Chief Janet Yellen says they are not going to tighten. Then in the same press conference she says they are going to tighten. Then she clarifies in a speech that they are going to tighten unless something really bad happens, which means then they won't tighten. They are ready to lift off in 2015 unless they don't lift off. Meanwhile, the same Fed governors and presidents who won't even acknowledge they are sowing confusion are adamant that it's time to tighten, even though things have gotten appreciably weaker.
These people have worn me down and added a tremendous gravitas to the bearish case that I have been stuck with for some time. Their indecision is a huge part of the overhang. Sometimes I wonder, "What do they know, what is the event they are worried about, or events?"
Are they concerned about the possible collapse of the huge mining and trading concern Glencore and its minimum of $50 billion in debt? The company came out today and said all things are fine, so is the Fed less worried? Are they wary of the $170 billion indebted monster that is Petrobras and what it would do to all of the high-yielding funds in the world? Are they focused on the newfound problems at Volkswagen? Do they know about a bank or brokerage that is in trouble? Do they sense, like Carl Icahn in his video diatribe against high-yield bonds issued, that many investors are huddled in these to reach for yield, something I can't stand and railed about since the start of the show in 2005?
Do they know of a country that's about to go under? Do they have a secret knowledge of a government shutdown? Jeez, they make me feel something is looming which causes more woe. Plus, I am now in the camp that if you can't beat them join them, but recognize that many bad things could happen when they raise, even as so many tell you they won't. I wish I had their certainty, but I am too old and have lived through too many tightening cycles for that.
I don't like this political backdrop of uncertainty. I do know that the Democrats who are running seem as hell bent against people making money in the market as I can find and the Republicans, well who the heck knows? Only Donald Trump seems to be offering a plan and it's pretty pie in the sky, although I like that he wants to get rid of the big tax break for hedge fund managers.
I know good news doesn't matter much. Apple (AAPL) sold so many more new phones than I thought possible, but its stock is being pummeled. We got some tremendous earnings last week from the homebuilders, but they are all down. Nike (NKE) did well, but it's been giving up the gains slowly, but surely. Alcoa (AA) announced a fantastic restructuring that will bring out a lot of value and it barely budgets.
The U.S. dollar, which has actually been weaker against the euro, hasn't mattered because it is staying strong against all other currencies because those currencies react to a tightening.
China continues to struggle. Each morning when I awake I expect to see the critical 3,000 level on the Shanghai market breached. The only reason why it hasn't is because of the government's unsustainable prop-up.
So why bother to be constructive at all? First, I don't hear a lot of bullish commentary any more from everyone. I feel I have been joined by the majority of those who opine. That's worrisome. The consensus is rarely right when it is all in, no matter what the direction.
Second, despite my bearishness I am so pummeled on Twitter (TWTR) as someone who is bullish that we might be at a short-term bottom. When you get such raw hatred that you have to resort to posting your fantasy football win to show something good, you know you that the community wrath is too great to be a top. More likely, we are due for a bounce because sentiment is that tortured and ugly. Get ready for a lot of pictures of my dogs, because nobody ever argues with a dog.
Plus, empirically something has changed. When I say we are in a bear market that means stocks are going down. But how much down? Here are two interesting stats.
- Of the 1500 stocks that are part of S&P baskets, 117 are down 50% from their highs. That's plenty.
- More importantly, 600 are down 25% from their highs. That's staggering.
Those who are just beginning to ponder the notion that we are in a bear market should consider those numbers. Of course it's entirely possible that you need a majority of stocks to be down 25%. Maybe some of you think that all stocks have to be down a minimum of 25% and many more should be down 50%.
That said, you are really dealing with some serious damage and I do think more is on the way simply because there are so many broken charts and broken hedge funds and broken concepts, like roll-ups and drug breakthroughs and master limited partnerships that can't stop falling.
Still, let's give this bear its due. You cannot say we are early to the sirens of destruction. As a defender of your capital I am not going to let my guard down. But I am also not going to say that nothing's really gone down and the rollovers have just begun. They've been going on for months, accentuated by endless selling in all sorts of ETFs that make knocking down stocks just plain child's play.
Plus, all the faves like FANG (Facebook (FB), Apple, Netflix (NFLX) and Google (GOOGL)), are in the woodshed and their shareholders are being beaten until morale improves. Biotech had been the brightest star in the horizon. T say it has dimmed is too kind. Natural and organic have become unnatural, inorganic and just plain dead. Tech? The cloud? Sold to you. Roll-ups? They have gone from darlings to the most hated stocks in the universe. I may go as a Roll-up for Halloween. It's going to be this year's Jason or Freddie or Walking Dead.
All that said, I have some stocks I am constructive on and would be buying for my charitable trust if we weren't endlessly restricted. I like Eli Lilly (LLY) for its diabetes and alzheimers drugs and now let me add a rheumatoid arthritis drug. I like General Mills (GIS) for its consistency and Conagra (CAG) for its restructuring, although it does have too much hedge fund money in it. Let me add McDonald's (MCD), where today Credit Suisse came out and said that this three-and-a-half yielder could report an upside surprise. I like the menu changes that new CEO Steve Easterbrook's put through.
I know, not a lot. But unlike 2007-2009, I remain convinced that this market is more like 2011 which would put the downside for the Dow at 15,231, a little less than 800 points from here and the S&P 500 at 1768, about 90 points from these levels. That year had systemic risk galore, but it was from Europe. We did have political nightmares here, though, over the budget. The systemic risk I see is offshore this time too and we have some political toxicity going just like then. That's why the comparison holds up and it's been my totem the whole way down.
The saving grace? We are getting closer by the day, at least most days, and while the torture seems endless, this, too, shall pass.