I am calling the bottom (in case anybody cares)

We are at the bottom – more or less. The S&P500 declined around 50% from his highs, which makes this market one of the biggest bear markets in history (the much referred Great Depression being the only one that was worse). Here is my reasoning:

Chart by Doug Short

Chart by Doug Short

1. Horrible Retail Numbers, Auto Execs pilloried and Dooming Job Numbers – Nobody cares anymore

This week we saw retail numbers that were quite impressive. Auto sales in November down 41%  year of year . All kinds of consumer good categories down between 25% and 35%. Numbers not seen for 40 years. Given that the US economy is driven 73% by consumption one can roughly extrapolate the contraction that we will see in Q4. Then, this week a bail-out of the Detroit-Trio became unlikely – all these miles driven for nothing, maybe they should have car-pooled? And we saw job numbers exceeding even the worst estimates. Each of those three ‘surprises’ would have created a major stock sell off normally. But this week nobody seemed to care – in fact the S&P500 left the week slightly higher. When even historic bad news do not bring the market down anymore, the market does not want to go down.

2. Warren Buffet is always right (sort of)

This week Warren Buffet called the bottom (again – first time in October) – and he has never been wrong in the past, at least in the long-term. He is not a market timer (he admits he does not know how much longer this bear market will last) but a market ‘pricer’. Meaning that investments in  stocks (the right ones – please no financials or gas guzzlers) at current levels should get long-term above average returns. When I am wrong with calling the bottom, than at least I have prominent company. Clusterstock has a nice write-up and links to all the Warren Buffet articles where he is calling the bottom.

3. Shoeshine boy buys triple leveraged short ETFs

Joseph P. Kennedy (1888-1969) knew that it was time to get out of the market in 1929 when his shoeshine boy began giving him stock tips. When people like me start to play with double and tripple leveraged short ETFs (hello SKF, FXP, SDS etc.) then the party must be over. Retail investors get to these parties always too late – by then the cool crowd has moved on already. That means from here on it will go sideways or up, but not further (significantly) down.


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