Bullish...

The New York Times reported in the Sunday Times this weekend that a bull escaped from its pen and ran wild through the streets of Queens. While there is not much precedent to give this event credence as a contrarian indicator, it is worth examining some of the factors that may result in a stock rally for the next few months. No less an authority than Marc Faber, a fund manager so bearish that he is often referred to by his nickname, Dr. Doom, thinks a rally is imminent. He writes,

"What is important to understand is that equity markets have become extremely oversold, that sentiment is very negative - almost a panic - and that equity markets usually bottom out from a seasonal point of view between the end of September and early November. Markets may have put in a low yesterday and could rally into March of next year. But such a rally will not be the beginning of a new bull market but a bear market rally, which will be followed by further price declines - certainly in real terms - as the global economy contracts and as corporate profits disappoint badly. The credit bubble has burst for good and central banks' easy money policies and large fiscal deficits will be unable to re-ignite credit and economic growth. Between 2001 and 2007 we had a global synchronized economic boom and a bubble in all asset classes including real estate, equities, commodities, art, worthless collectibles, and even bond prices. Now a global bust will follow with all asset prices deflating one after another like a falling domino."

I would add to this four things. Baron Rothschild once extolled the virtue of buying when there is "blood on the streets." In the last week I have heard everyone from the extremely rich parents of a friend of mine, to my union colleagues at the Metropolitan Opera house wondering if it is finally time to give up on equities. Secondly, yesterday I overheard a shopkeeper in Brooklyn worrying about deflation; highly unusual considering his costumers' complaints about high prices all year. Thirdly, since 1888 the Dow Jones Industrial Average has risen 4.34% on average from October through December in a presidential election year. This has occurred in 21 of the 30 election years. And finally, the Dow failed to break 10,000; a very important psychological level not just for stock investors but for the American public at large.

While none of these musings is remotely scientific, I would like to mention that the stock market appears to be the only market in the world where people typically buy when prices are high and sell when prices are low. It makes no sense to wait until some Abbie Hoffman-esque character releases a bull in lower Manhattan for more of a signal to begin bargain hunting.