Thursday, September 24, 2009
is quite high right now in most asset classes. A nice drop today in U.S. stock market indices and the Asian markets are tanking right now. Doesn't mean this stock bear market rally is over (it could be), but everyone with a brain and their sister knows we're awful close. Going long here on anything besides the U.S. Dollar, oversold junior Gold miners or volatility is risky on an intermediate-term basis.
Don't forget Mr. Vix (the Volatility Index or $VIX). A nice base has been building for some time now as everyone forgets about risk and jumps into the frothy bull party. Everyone's hammered and giddy with success as everything keeps going up seemingly every day and every dip is bought with confidence. In the mean time the percentage of stock bulls is over 90% and the media and "powers that be" declare that the recession is over.
It's true - the recession is over. We have entered an economic depression, so the term "recession" no longer applies. Screaming "fire" in this theater has been a losing proposition for months now, but the building is sending up the kind of smoke that can no longer be ignored. With a real P:E ratio (i.e. actual reported earnings over the past 12 months, not estimates of the future and not operating earnings) in the 150 range for the S&P 500, a new long-term bull market in general equities is years away.
Here's a 3.5 year chart of the Volatility Index ($VIX) just to remind people where we are in this bear market:
And here's a rough measure of sentiment in chart form over the past 3 years, the 10 day moving average of the equity put to call ratio:
Cash is not a bad position here, even if you hate the U.S. Dollar. Going short with a long-term time horizon is a good trade here. Staying in physical Gold and ignoring the markets until the Dow to Gold ratio gets to 2 or less is a no-brainer play. Risk is extremely high right now and this cyclical (and secular) bear market is far from over.