Monday, December 7, 2009

Rallying on Disbelief

An unusual bullish clip from Tech Ticker. They typically parade out numerous skeptics of the market rally. It is precisely this kind of skepticism that makes Bernie Schaeffer, chairman of Schaeffer's Investment Research, believe the rally still has further to go.

Bernie has several points that have backed our belief that the market will continue to rally. Namely, money on the sidelines still aren't moving into cash and investment experts remain negative.

His main points for the market moving up from here:

  • The Dumb Money: Through October, equity mutual funds had net outflows of $1.9 billion year to date while bond funds had inflows of about $312 billion, according to the ICI. Furthermore, there's been about $10 billion of inflows into inverse funds that short the market, Schaeffer notes. "It not even that money is not coming off the sidelines - [investors are] betting against the market."
  • Magazine Indicators: In 1982, a Business Week cover declared "The Death of Equities", perhaps the most famous contrarian indicator in history. More recently, Time proclaimed "Why it's time to retire the 401(k)" in October, while Newsweek weighed with a "Boom and Gloom" cover story, which basically dismissed the validity of the market's recovery. Such covers in general interest magazines suggests how negativity about the markets permeates popular culture, Schaeffer says.
  • Guru Chatter: There's a lot of talk these days about the "New Normal," characterized by high unemployment and sluggish economic growth. That may well prove true but to Schaeffer, it's a mirror image of the "New Economy" chatter circa 2000. Similarly, there's a lot of talk now about the "death of buy and hold." Schaeffer is a market timer but says now probably is a better time for buy and hold-type investing vs. 10 years ago.

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