THE MOTHER OF ALL BULL MARKETS?
I liked this quote from Niels Jensen’s latest monthly letter regarding the end of the Euro crisis. If, and when this dreaded crisis ever does end, he’s likely right that Europe will embark on the mother of all bull markets:
“If structured correctly, a eurozone exit is not the Armageddon it is so often portrayed to be. When the perma bears realise that, and as they begin to see the benefits bestowed upon the first mover, the mother of all equity bull markets will be unleashed in Europe. As I have frequently pointed out in recent months (see for example here), European equities are extraordinarily attractively priced at levels not experienced since the dark days of the early 1980s. We are just waiting for the catalyst, but remember one thing – banks will not be the place to be.”
Many of these markets are so dramatically oversold that any sort of resolution will be positive simply by virtue of the fact that things couldn’t get much worse. But there’s still two directions this goes from here. Does Europe unravel in a disorderly manner resulting in prolonged pain or will they come together and form a true launching pad towards permanent solution? I still think a move towards fiscal union is the likely outcome, but the path to getting there is proving painfully slow. If and when a permanent solution is implemented Jensen will likely be correct….
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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43 Comments
Geez Roach, you’re really bringin in the traffic here: 0 comments, 0 comments, 0 comments…hahaha. I came back to see if that fraud Wray has written a real textbook yet and I guess not. Adios
Well, when you post a comment 4 seconds after I hit publish on all the articles then you’re bound to find 0 comments.
Wray’s wife just died. Can’t you hold off on the pot shots for a bit?
I don’t think that’s public information (as far as I know), but in case anyone doesn’t know – it should make everyone think twice about insulting people on the internet who you don’t know. There’s more productive ways to interact on the internet than the way Hillbilly usually comments. Be respectful, be nice and try to be constructive. It’s perfectly fine to point out when other people are wrong or if you think I am running the site into the ground. But rather than sling insults try to offer something constructive. I run the site in an effort to offer constructive and through provoking ideas for the readers. Obviously, not everything is a winner, but I rely on the readers to offer constructive criticism to help us all benefit more. And if you hate the site then don’t visit. No problemo.
I’ll take care of my street..
After watching the Dream Team piece last night. I accept my role as Charles Barkley but will conduct myself as though my son is watching me with that big smile.
Sorry to hear the loss.
I watched it also last night. Pretty good. Fun to see Jordan’s competitive drive and how you can see why the guy was such a freak. Lots of guys are physical freaks, but that attitude is so rare. It’s like a controlled fury/rage. Unusual. Magic is always my favorite though. How can you not love the guy’s attitude?
Roach, where’s the textbook from Wray on MMT
We started MMR because we thought MMT was wrong in some parts. Wray has been one of our most vocal critics. See here. http://pragcap.com/understand-the-modern-monetary-system/how-is-mmr-different-from-mmt
Can someone locate Niels returns in
2007-
2008-
2010-
2011-
2012-
Can someone post this so that we can determine the bottom line?
I was able to see one fund on his site for his global fund with a loss of -.28 in 2011 and up 3% in 2012.
Anyone with access to this info could determine the weight Mr. Jensens words should carry.
Oh, I agree with Niels Jensen. GIANT opportunities in Europe coming. But he thought that housing would remain robust in the US. Anyone who
followed the news in the 2000s knew housing was going to be a problem. A miss !
I am sorry but such thesis is outright disgusting, expecially when heard from a “professional”.
Obviously, will will have bull market after bear market! A “little” problem though is that nobody have seen yet any major economy exiting successfully from balance sheet recession and returning to “normal” growth on sustainable basis. People, just be reasonable! Do you honestly believe that US (the strongest developed economy now) can return to 4% growth and 2-4% budget deficits given the current economy structure??? No chance! So, how many 10%+ deficite years do we have ahead of us? What would be the final resolution of the deleveraging? What would be EPS and multiples at the true bottom? Nobody, nobody, including the owner of this blog, has any clue. And, for obvious reason, nobody ever tried to the slightest degree to quantify the outcome of the current deleveraging.
And after that some clown says that EU stocks are “oversold”…
Without hard market pressure,a real crisis in the market, it is hard to imagine the European countries go to the fiscal union. And the current market has only had a little above normal correction. The ” oversold” only relative to a correction, not to any crisis stress level. Has any ” bull market” started from hope and illusion that somebody will help? No, It always start from Desperate and hopeless.
Except the Euro crisis ending is nowhere insight.
Which market is dramatically oversold?
I don’t fully agree with this, I spoke with a friend of friend last night who has been doing deals hand over fist to furhter capitalize companies that are primed to grow in the Eurozone. He let slip that there has been an unbelievable uptick in the number and demand for his deals in the last 60 days.
Can’t dispute when you quote a source.
There is nothing to support such activities in a wide range. Just look at the Euro PMI lately.
Yes, I’m not exactly
Compu-schmater’s being screwy today-
Yes I can’t exactly sound very well informed if I can’t tell you the name and he’s described as ‘a friend of a friend.’ I’d be inclined to think I was full of it if I weren’t me.
And even more so, who says this means there’s an end in sight? There’s someone doing deals and making money in every economic environment.
Cullen, in the quoted text he’s talking about a EZ exit. That is wholly different from a “permanent solution” that involves all countries staying in the EZ, like Eurobonds or some type of fiscal transfer system. If a country drops out, their market would probably plummet initially, but then yes it would set the stage for a huge rally as the country could devalue its way to growth.
On the other hand, if a fiscal transfer system is set up and all countries remain in the EZ, this is a recipe for a decade of stagnation. The private debt burdens from the housing bubble remain, horribly so in countries such as Spain. Default may no longer be a worry, but there will still not be enough continent wide stimulus to get the economy going. The United State of Europe would be the United States of America without the dynamism, creativity, integrated and flexible labor market, and national unity. So take our long run growth rate, apply a significant haircut and you get what they would become.
Most of the peripheral equity markets are indeed dramatically oversold, though certainly for good reason. Greece is down more than 90% and Spain has taken out the March ’09 lows . . . but Greece is in a depression and one might say that Spain is too. My belief is, however, that even if Germany came out tomorrow and said ‘ok, we’ll do the whole fiscal union, eurobonds thing with joint liability etc…’, after the knee-jerk higher we’d all have to look around and ask, where is the impetus for future growth going to come from around the world? I fear we’re in for a prolonged period of quite low nominal growth rates and that in a few year’s time, today’s multiples will look expensive in a single-digit P/E world.
Europe, no matter how cheap it gets, will never be the “mother of all bull markets”, until it ceases being “broken”.
Europe is RIMM – it’s model is wrong, it’s model is broken. Europe is any broken company whose stock price has declined 90% and has been left for dead.
Again, just to emphasize – Europe is a wealth destruction machine – that’s what austerity in the context of the inability to print money is…
If Europe was a company it would be a shareholder destroying machine. It will never be a buy until its business model is completely changed.
Just because something is down massively doesn’t mean it’s a buy, so long as the entire concept of the model is flawed, just like RIMM, just like Europe.
Good analogy.
The problem for us is, when/if a real fix is in place (“new business model”) the market will have rallied like crazy already.
You could be right. I think the better way to play it though is to focus less on a “fix” for the whole continent and more so on the smarter countries which decide to defect first (either voluntarily or involuntarily) and re-introduce their own currencies and massively depreciated value.
History says when this “even” happens (i.e., when the Drachma gets reintroduced), if it does, you can buy the day of or after (even if you see the market locked limit up that day) and ride it for the next 18-24 months for a cool 2-3x or 10x your money.
I’d rather play that set-up then some impossible to predict set-up re: when the whole continent gets fixed.
I’m a sh*t trader so let me ask “buy what?” Greek large cap equities? Index funds?
(always appreciate your insight B Ferro).
There’s really no way to play it but through domestic listed Greek equities. Go to Finviz.com and filter groups by country and look there for a list.
Again though, we bought Greece the other day merely because it hit a technical set-up that triggered the buy. Trying to rent, not own this as I think they ultimately exit and everything gets decimated even more until you get the “event” day where the exit occurs (if it does).
If so, NBG becomes a penny stock (vs. 1.75 current) and then goes up by ~20x in a year. Go look at a chart of GGAL in 2002. I think that’s what happens to NBG. Buy 100 shares as a marker and then ignore until they exit the Euro (if they do) and add then.
There’s no liquid ETF way to play Greece.
Great insight as always, thanks.
My pleasure.
Has anybody noticed the following this week??…
SPX +85 bps
NDX -10 bps
RUT -40 bps
SPX Sectors
Health +150 bps
Staples +75 bps
Energy +65 bps
Fin +45 bps
Util +30 bps
Industrials -10 bps
Tech -10 bps
Basics -50 bps
Pretty incredible scramble for safety within context of chasing risk in equities
Consuer Disc -40 bps
Right. The Gap between S&P and RUT always tells people something. And Germany is not happy that people push for short solution, which is totally ignored by the headlines.
Market seems setting up a great short opportunity next week after Fed meeting. Can not help thinking it is 2007/12.
Great insight B Ferro.
I sold a big chunk of my long Spanish equities position this week, didn’t add to it despite advances on Thursday and Friday (although we could reach 7000 if the market continues it’s bullish reversal).
As said couple weeks ago when the SPX was below 1300, I could expect this relief rally up tot he 1360-70 area, we still have to reach it but it’s not unexpected (despite ‘news’ and ‘rumours’ bullshit).
Fundamentally I don’t think much will change past Tuesday, any intervention will be reactive, after something big happens and there is no back up for new intervention by the FED YET. Worse is better for now and seems like market participants got a bit ahead of theirself. (BTW look at the 30y & 10y! and which has been more right in the last years, it’s usually the stock market which converges with debt & credit markets.)
One thing is for certain, this market ain’t a long term trader/investor market, is a market to be traded on daily basis practically. I feel the pain of retail and why they still are not being sucked into the stock market.
Sounds like management needs to be booted…
Too bad timing the end of the Euro crisis is practically impossible. Especially considering it seems like it’s never going to end….
I like Europe more than the U.S. precisely because the inability to print money and their decentralized politics are forcing them to address their issues, rather than papering them over.
I would anticipate that some of their economies will do very well and some will do very poorly. I think Poland and eastern Europe stock markets would be attractive.
Again, I would anticipate a severe downturn while debts are written off and budgets brought into line, then growth. Meanwhile, the U.S. will continue on a Japan-style, lost decades doldrums.
Europe remains a continent with highly educated workers, healthy cultural and political cultures, vast resources and wealth. Long-term, they will solve the problem.
While I do understand why, I find it ridiculous all the wailing over the low returns…hell after this is over most of us will be lucky if there isn’t a giant hole blown through our asset holdings.
Why would anyone be surprised or fear this evolution…and it is an evolution….are you in fear that your asset values will decline? What about the countless comments about how screwed up the political system has become through chronie capitalism. How citizens, business and the markets in the developed world have become dependents of governments due to chronie capitalism which by its nature favors the wealthy.
Does everyone believe the wealthy who are destroying our economies would give up their power willingly and you would not sacrifice? Perhaps some of you consider yourselves part of the wealthy class. So baby boomerish…a generation who has not experience sacrifice since the end of the Vietnam war.
Those in the US who were 18 years of age after 1974 have been coddled by the US government and have in general developed ethical behavior in which they conduct themselves in government and business affairs that make a pirate at port look like a beacon of ethical behavior.
European banks lent money they didn’t have to European countries, so why does it matter that they don’t get paid back. Destroy the ‘asset’, which is a debt that can never be repaid anyway. Once they have exhausted all ways to maintain the current system, hopefully they will choose the obvious solution.
“Those in the US who were 18 years of age after 1974 have been coddled by the US government and have in general developed ethical behavior in which they conduct themselves in government and business affairs that make a pirate at port look like a beacon of ethical behavior.”
Please reference your data that allows you to make such a sweeping and generalized conclusion.
Thanks,
NaE
Reference my data?? R u serious? Penn Central, Chryslet, S&L crisis, NAFTA , dot com bubble, financial deregulation, creating the housing bubble to offset market decline, creating stock bubble to offset housing decline, destruction of middle class political power and wealth, multiple wars fought by a small fraction of out population as if it were a mercenary army, business leaders putting corporations above the good if the country, leveraging pension funds as a means of tranfering wealth, business leaders who have mistaken unethical behqvior for compitence……god I could go on but the fact that you have asked the question speaks.volumes.
The good news for the Eurozone is that it has started to run a Current Account Deficit in 2011. And that means that there’s no more “kick the can down the road” anymore.
Trading the Eurozone/Europe yes. But a buy and hold ? No way !
Similar to Cullen’s comment on the bearish crowd, could there be so many Negative Nancys in Europe that they are willing to bite off their own nose to spite their face? That’s what sits in the back of my mind since Europe did it (the previous century) from 1905-1945. Europe lacks leadership, and that is why the Europe discount is in the markets.
Sometime it seems that the European gene pools was seriously depleted of people with Get-it-done ability when substantial numbers of their citizens immigrated to the US.
But then I look at our own leadership and their long-range planning (lunch time) and see there truly is no difference.
Except for the Currency User vs Currency Issuer difference – we are no different. Our political leaders share the exact same motives (money, sex & power).
I am sure Mr. Jensen will be right … eventually. There is only the small detail of when.
The one point that is often missed is that it NOT the LEVELS that matter, but the CHANGES ON THE MARGIN. In other words, valuations can get a lot cheaper before they get expensive again. It is not enough to be below the historical mean. Think of the reverse situation. In the 90′ US stocks looked expensive and above the mean. However, they kept getting even more expensive before the bubble popped.
Think on the margin …
I think the Internet way of doing biz has made us all to impatient. Most value investors acknodledge the biggest mistake they make is being too impatient. I was holding a ton of SPX 750 and 850 LEAP calls in February 2009. I did hold until may to sell them, and I did at a nice profit, which was of course a tiny fraction of what it could have been if I held.
It seems very early to jump into Europe. At least when I started jumping into the US equity market in January 2009, Benny had gone into ZIRP in December 2008. I wrote back then, either here or at Rounini’s, that that would do the trick: help the economy and push people into risky assets.
” If, and when this dreaded crisis ever does end, he’s likely right that Europe will embark on the mother of all bull markets:”
I imagine that people might have said something similar at various point in the Japanese post meltdown history.Pointing to book values and an assortment of similar measures.Yet the macro economic situation for Europe and the preferred method for dealing with it we have seen over the last few years would suggest we should expect am extended period in which market conditions for returns will be poor.Lest we forget let us remember that to date all we have seen is privately held debt move to being publicly held with minimal writedown,or restructuring.The debt is largely still there and will unless approaches change ave to be paid for via taxation probably give their growth strategies appear none existent.
European listed companies whose majoroty businesses are drived outsode of Europe might do better of course.
Behind even the above Europe still has a very bureacratic overlayer to deal with that without reform also promises an uphill struggle for businesses to mae money in.
In conclusion,I find talk of “mother of all bull markets” to be unlikely although I don’t doubt prices can be spiked on occasion by sentiment driven conditions.
I second that. It is commonly thought that the comparison to Japan is inappropriate because Japan has a problem of demographics, but that is not the real point. The point is that Japan has persistently avoided dealing with its bad debt decisively, and let zombie financial institutions survive. The chance of a Japan-like outcome in Europe, and I believe also in the US, is not to be dismissed. The challenge that financial markets face is not valuations, but loss of credibility. As an aside, note that the recent pattern of rallies and retracements is fully consistent with a post-bubble japan-like market. The jury is still out if ‘this time is different’.
The good times will start immediately after the bad times are gone once and forever!