The euphoric stock market rally that rocketed us off the lows of the crash has come to an abrupt, painful end. Talking about a "V-shaped" recovery is now one of the fastest ways to end up the butt of jokes. Stocks have once more fallen out of favor, replaced by gold, ammo, and farmland.
Of course, folks better have some farmland and ammo, if the predictions of Elliot Wave International's Robert Prechter come true. Last Friday, The New York Times covered Prechter's apocalyptic view:
The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, [Prechter] said. That unraveling, combined with a depression and deflation, will make anyone holding cash "extremely grateful for their prudence."
"Grateful for their prudence" is a massive understatement, since 10% unemployment would likely be positively enviable at Dow 1,000, and extra cash would be invaluable for purchasing necessities like food. That is, if the currency even has value at that point. Otherwise, the only prudent people would now be pulling their money out of stocks and putting it into cows, chickens, and cornfields.
But perhaps it's easy to shake off Prechter's bleak prediction. I'm about as likely to rely on Elliott wave theory -- which underpins much of Prechter's work -- for my investing as I am to rely on Miss Cleo for my love life. Indeed, The Hulbert Financial Digest found that Prechter's guidance has actually led to market underperformance since 1980.
A bull gets bearish
However, I paid closer attention to the recent abrupt about-face from Wall Street mainstay and manager of the Traxis Partners hedge fund, Barton Biggs.
Back in March, I covered some of Biggs' bullish sentiments, which centered on his expectation that the market would gain another 10% to 15% by year's end, and that large-cap technology names like Microsoft
Fast-forward to last week, when those bullish sentiments seemed long gone. In an interview on Bloomberg Television, Biggs said:
I sold stocks pretty aggressively in the U.S., and we had a lot in tech ... I've taken basically all of it out in the U.S., and we had a broader exposure to consumer stocks and just, in general, I've reduced my net long position by about 30 or 40 percentage points.
At the end of March, Traxis had nearly 17% of the fund in the tech-heavy PowerShares QQQ
That'd be quite a change in direction in just three months. That is, if it actually happened over three months. In fact, Biggs had this to say to Bloomberg just three days prior:
"I'm definitely not a seller," Biggs told Bloomberg News on June 29. "All things considered, I'm going to stay where I am unless the market really comes down some more. Then I'd be inclined to be a buyer."
Sure, he did also say "I can change my mind very quickly." And sure, I believe in John Maynard Keynes' quip, "When the facts change, I change my mind. What do you do, sir?"
But three days? Really?
Just as confused as the rest of us
Though Biggs' track record probably earns him the benefit of the doubt, it's hard not to see his rapid about-face as a sign that many big-time investing veterans are having as much trouble figuring this market out as the rest of us.
Certainly, economic data hasn't been helping. While most data points look much better today than they did in early 2009, the direction and speed in which they're moving looks a bit worrisome. And with the government engaged in a stimulus-austerity tug-of-war, it's impossible to say whether the economy will be flooded with government cheese, or whether Washington will be ripping up its checkbooks.
Yet I still find it very hard to get on board with sellers like Biggs and start unloading my portfolio. As my fellow Fool Morgan Housel pointed out yesterday, corporate profits have been very strong. While an economic pinch could stunt further growth, it seems like the market has been particularly harsh in pricing in a potential profit slide.
While Biggs and others have been scared out of the market by the recent declines, I hang on the view that the risk in stocks declines as prices drop. That means I've been getting a bit giddy watching the S&P slump 15%-plus over the past couple of months. With solid blue-chip companies like ExxonMobil
Does Barton Biggs have the right idea? Should we all be running for the hills? Head down to the comments section and share your thoughts.
Whether or not there are gathering clouds in the U.S., smart investors should be scouting out foreign markets.
