In the debate between stock market bulls and bears, it is quite obvious that the bears have all the rational arguments (chronic unemployment, record gov debt leading to higher taxes, broke consumer, broken credit markets, uncertainty about economy once stimulus subsided, and so on). The bulls, on the other hand, offer pink and fluffy arguments that are based on hope and optimism.
The one flawed argument by the bears, though, is the claim that the market is all driven by government money. Well, that may be true, but who cares? Up is up, that’s all that matters as far as your trading P&L is concerned. There are no beauty prices for stock gains that are “justified by economic strength” vs. stock gains that “come from government-induced asset inflation”.
It is our conviction that in 2010, the current suggar bubble will collapse. But for the time being, giddiness rules. And one should also not forget how long a correct macro argument can exist before the market catches up to it. Example: In 2005 and earlier, some pundits warned of the coming real estate collapse, but it did not happen till 2007!
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