Bulls vs. Bears Circa 2013: Who's Winning?

     What I notice is that most of the people on the Internet who are into heterodox economic views remain very bearish. My buddy, and long time Diary of a Republican Hater reader Nanute-a fellow liberal-remains bearish. One of my favorite bloggers out there, Woj, is something of a permabear. I can't find many bulls. Here's Woj:

     " I think we will see a bear market within the next 2-3 years that brings the S&P 500 back into triple digits. History is also on our side since few bull markets have lasted more than 4 years (where we are now)."

      http://bubblesandbusts.blogspot.com/2013/01/corporate-revenues-fail-to-keep-pace.html

      As Woj says, history is on the side of bears as roughly for ever 5 up years you get about 3 down years in the market. We are in the 4th year of this rally now. Yet this is the trouble with permabears: If for 8 years I'm predicting a huge sell off and for 3 years there is one and 5 years the market goes up does this make me a seer?

     If you remain bearish long enough you'll be right. Note, though that while it's plausible we'll see the market taper off at some point that doesn't mean we're going to retest the 2009 lows. I personally see that as very unlikely. If you believe that you basically believe that the whole system very well may collapse any day now. Things have improved a lot however, at least in our United States.

    The only way I could see us going back to the crisis of 2009 is if maybe the EU not only never gets it's act together but drags the U.S. down with it. Actually, it's an interesting question? Are we now living in a bifurcated world? For me to be right about the U.S. means that we are: ie, the U.S. can continue to grow and strengthen while the EU is a basket case-there are some signs of improvement even there though there is a long way to go.

     As I suggested, it seems to me that heterodox econ guys tend to have bearish views. Woj is an interesting amalgamation of MMT and Austrian Business Cycle Theory-ABCT. He clearly remains very bearish. He also, by the way has a very good piece about inequality and to the extent that it's retarding the recovery-an important read.

    http://bubblesandbusts.blogspot.com/2013/02/inequality-really-is-holding-back.html

     My theory is that part of it is that if you have heterodox economic views and you think that economics must be fixed you on some subconscious level almost don't welcome good news as it would seem to take away the impetus to the kind of change you think is necessary.

    The stock market itself, however, keeps pointing up. Today it's again hitting up against 14000. If it goes over that I think you would have to consider that another very bullish indicator-provided it can stay above it.

     Yes, if you wanted to play bearish you could look at the Vix which is now, amazingly, beneath 13. Still there is a history of the volatitlity staying low over a long haul like during the bullish years of 2003-2007. To me it seems reasonable at least if someone wants to try to put a few short positions now with the Vix that low-though I wouldn't as I don't know that its going to sell of now.

     However, it would be a short term correction. In the longer term I see things as bullish for now. While Woj is right that most bull markets don't go beyond 4 years, the economy is currently far from overheated or lacking in economic slack.

     I think the best gauge is the economy to whether or not the market is overheated. The economy isn't, so the market isn't. There will be some sell offs here and there as it never goes straight up. However, the general direction is up. If you disagree then you believe we're going back to the level of economic crisis we had in 2009. As I don't see it I don't see us retesting the lows. Don't get me wrong. We will at some point have another bear market as the economy will one day hit the top again. However right now we're pretty remote from being overheated.

    I see in Cullen Roche I finally have a kindred spirit: he too doesn't think the permabears are right:

    "When I started this website I knew pretty quickly what would generate traffic and attention. If you write about things that really scare people, conspiracy theories, Apple and gold you can drive enough traffic to a financial website to make a decent living (until people realize you’re basically scamming them). I told myself I’d choose quality over quantity and that I would TRY, above all else, to provide relevant, educational and ACCURATE information for people. I knew it wouldn’t be enough to make the site sustain itself, but I truly felt that the alternative was a dishonest and low value way to write about finance, money and investing. I don’t always succeed in this goal, but I always try."

    "One of the few things I’ve been right about is the “no recession” call since many notable investors and pundits began loudly declaring recession in late 2011. I said none of the indicators were pointing to renewed recession and that the likelihood was for continued meager growth within the de-leveraging cycle. In essence, misunderstanding the balance sheet recession was deadly for your portfolio and your general understanding of macro trends."

    "Now, I know I don’t make many friends writing happy things about the economy, but the bottom line is that the global economy could be much worse, policy makers could be wrecking the economy and American businesses could be far worse off than they are. We’re in this world where things are adequate enough to remain positive. All things considered, that’s pretty positive since we’re coming out of the worst and most unusual economic crisis of the last 80 years. This morning’s economic data was just further confirmation of this reality. Here are three clear indications that the recession calls were completely wrong and are likely to remain wrong for the foreseeable future."

    http://pragcap.com/the-recession-calls-were-wrong

    His reasons are: Jobless claims are at a post-recession low, the  US PMI continues to show a clear expansionary trend, and The Orcam Recession Index, which helps steer me to my main conclusion regarding growth, remains positive.

    He also has a great piece about how rail traffic points to economic growth.

    http://pragcap.com/rail-traffic-continues-to-point-to-economic-growth

    Above I suggested that maybe heterodox econ guys tend to be congenitally bearish as they

    A). Believe that all the wrong things are being done by policymakers.

    B). On some level perhaps don't want to accept that things are getting better as it might seem to diminish the importance of their heterodox ideas.

     I think it's a mistake. I'm fairly bullish about the US economy and market right now but I also realize we have a long way to go in our macroeconomic understanding. A lot is still to be learned. We can still do it even if the world is not about to implode within the month.

    Cullen also has a fascinating piece entitled "Why do people hate rising stock prices?"

    http://pragcap.com/why-do-people-hate-rising-stock-prices

    One reason he gives that is right is that most people don't participate in the gains. However, that's far from the whole thing. While I have picked on "heterodox econ guys" here, I notice that a sense of apocalyptic bearishness is everywhere. Many of those interviewed on CNBC see a coming "debt bomb", "galloping inflation" and the Kingdom of Heaven close to hand. Guess you better buy gold!

   Actually it might not be a bad idea though not because of the fears of the gold bug but simply because it's been a rising commodity.
   
    For the record I'm not a permabull in that I was bearish back in 2008. Indeed, in the Summer of 2008 when all the Wall St. guys were predicitng that we would whether the storm, I was stocking up in bank stock puts. Made over $10,000 the last few months of 2008. Of course, I ended up overextending myself. The point is though: I wasn't always a bull.

   P.S. the Sumner EMH crowd would say that I was for a short time ahead of the market and noticed an inefficiency in it that I was able to exploit. However, my later implosion showed that the market caught up with me. The moral for them would be that you "can't beat the market." I'm not wholly convinced but here's Sumner's latest on EMH where he declares victory because Warren Buffett only saw his returns because of his great credit and sub average interest rates paid over 30 years.

   http://www.themoneyillusion.com/?p=19209