Monday, July 13, 2009
Hoping we can get back to S&P 1500. Hoping we can re-inflate the real estate bubble. Hoping we have the audacity to hope for the unrealistic. Hope, optimism and confidence are a big part of market cycles. Why do people feel hopeful and optimistic when assets are overpriced and pessimistic when things are underpriced?
I am shorting hope right now. Secular bear markets, which we are in right now in case you’re in denial, do not end with people being hopeful. Now it can certainly seem as though people are overly pessimistic, especially if you come to sites like this, but trust me, we’ve got a long way to go. This in my mind is one of the fundamental aspects of market analysis that is a missing piece of the puzzle for many.
Why would people pay for non-existent earnings during the dot.com bubble but only pay 7-8 times earnings at the end of a secular bear market? Shifts in herd sentiment. For humans are not always the rational animals many like to think they are. As in life, so in markets. Bubbles by definition require irrational actions and thoughts and unreasonable extrapolations and expectations of an existing trend.
Once a bubble pops, it ain’t coming back. Period. There’s no need to worry about picking a bottom, because once the bottom is in, there will be no mad rush to enter the fray. I see so many people looking to time the bottom of the real estate market when the bubble just popped 3 years or so ago (for residential real estate). Now is not the time to be seeking to buy real estate, it is the time to make sure one is fully uninvested and uninterested.
When the bottom comes in real estate, most won’t know and won’t care because when it finally is time to buy, hardly anyone will be interested in real estate. Such secular bears are not measured in 3 or 5 years but in decades (10 years at a minimum). And yet, the discussions many are having are related to trying to figure out when to jump back into real estate! Why? Because sentiment has not fully turned. But believe me, it will. And when it finally does, few will be left who are interested in participating in buying the bottom.
The sentiment for Gold is still quite poor and bearish. This bull market in money will not end in such a fashion. Gold, the investment that pays no dividends and has no growth prospects, will be neither ridiculed nor ignored by the herd when this Gold bull market is over. Sentiment and technical analysis both indicate a rosy future for the ancient metal of kings because money will soon be in high demand. And yet, at the same time, trust in fiat promises is starting to break down.
Gold is already returning to its true role as money. Trustworthy money. Money that needs no apparatchik backing and no confidence in “the system.” Money that is unattached to debt and unable to be created without effort. Money that doesn’t require belief in promises made by those who always break promises when times get tough.
It is coming and it’s not here yet. Sentiment dictates that the secular bear market in stocks and real estate has a long way to go and the bull market in Gold has a long way to go. It is too early to be looking to buy stocks or real estate for the long haul and too soon to be selling Gold. Patience will be rewarded.