Bears of Wall Street

Keenan Hauke, President of Samex Capital

In the stock market, when someone calls you a bear they don’t mean you are big, cute and cuddly. More likely they are referring to the nasty side of being a bear. Big teeth, sharp claws, and a tendency to rip things to shreds. When the bears come to Wall Street, it’s your portfolio that gets ripped to shreds.

There are a lot of bears walking around Wall Street these days. I’ve been at this for 15 years and I’ve never seen so many walking around. Not at the end of the tech crash. Not at the end of the credit crash in early 2009. About the only thing you have to do see a bear these days is, well, open your eyes.

I respect bears. Under the right circumstances, like 2002 and 2008, you have to get out of their way or your head will be promptly removed from your body. If you don’t believe me, just grab a statement from December 2008. Your 50% loss? That was the bear’s lunch. There are times, however, when bears are out and about and they are simply in the wrong place. Sometimes, the bull gets his horns underneath the bear and really gores him.

I realize a lot of people are scared about their jobs and the future of our economy. I worry about the long term picture of America as well. The stock market, however, doesn’t spend a lot of time thinking about the next five or 10 years down the road. The stock market looks out six, maybe 12 months at the most. And the stock market is saying and, has been saying, it really isn’t that bad out there right now.

Average investors and large institutions are paying a lot for downside stock market insurance today. According to Bloomberg, prices for downside protection have never been higher, even when compared to the end of 2008. If you think the global economy is about to get body slammed worse than what we experienced two years ago, then by all means pay up. Personally, I would rather go with the facts, and the facts say that a 50% stock market drop only comes around once every few decades. We probably aren’t due for another one for a little while. Which means all that fear built into the markets today will eventually dissipate. And when it does, stock prices will move up.

I wrote last issue that the intermediate term should see up-trending prices and, so far, that is exactly what is taking place. It might be time to add a small amount to equity exposure during down days, as conditions look brighter for higher prices over coming months.