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R(osenberg) & B(ernstein): Two Ex-Merrill Colleagues, Two Opposing Outlooks, One Permabull Rebuttal

Tyler Durden's picture




 

Earlier this week two former Merrill colleagues, since separated, were reunited on several media occasions, and allowed to spar over their conflicting views of the world. The two people in question, of course, are Gluskin Sheff's David Rosenberg, best known during the past 3 years for not drinking the propaganda Kool-Aid, and systematically deconstructing every "bullish" macroeconomic datapoint into its far more downbeat constituent parts, and his ebullient ex-coworker, Richard Bernstein, formerly head of equity strategy at a firm that had to be rescued by none other than Bank of America and currently head of RBA advisors, who just happens to be bullish on, well, everything. And since any attempt at holding an intelligent conversation on CNBC is ultimately futile (as can be seen here) and is constantly broken up by both ads, and interjecting anchors and show producers who care far less about facts than keeping the presentation 'engaging' (and going to such lengths to even allow Jim Cramer to have his own TV show), Rosenberg decided to dedicate his entire letter to clients today to "providing a rebuttal" of the slate of reasons why according to Bernstein the "we are on the precipice of a 1982-2000 style of secular market." What follows is one of the most comprehensive "white papers" debunking the bullish view we have seen in a while. Read on.

From Gluskin Sheff's David Rosenberg

R AND B

It is music though not necessarily of the B.B. King variety. It's the Rosenberg and Bernstein duet.

My good friend and former Merrill Lynch research colleague Richard Bernstein and yours truly duked it out at a business executive forum on Thursday over the market outlook.

It was like the good or days and felt really good.

I would say that over the long haul, Rich and I tend to share very similar philosophies regarding global events and how they will play out over time.
But when we differ, we differ big time.

That said, I have to tip my hat to Rich for having been earlier than I on the bull call for equities this cycle. At the same time, the bond-bullion barbell strategy and S.I.R.P. thematic has also managed to help generate decent risk-adjusted returns over the past three-plus years.

But kudos to Rich for the stock market view. That's what the debate was (and is) about. He got it more right than wrong. Be that as it may. just as past returns are never a guarantee for future performance in the money management field, so it is true in the realm of forecasting that extrapolating your latest successful calls can often be a big mistake.

Rich has said verbally and in print that we are on the precipice of a 1982-2000 style of secular bull market and has listed a slate of reasons why, and I intend on providing a rebuttal to each.

First, Rich is excited about the fact that the total national debt (government, business and household combined) has come down to 340% from the record peak of 370% set in 2009 and as such the deleveraging phase is gathering apace. I agree that going on a debt diet is a good thing to do, but it also eats into domestic demand and is one of the reasons why this goes down as the weakest economic recovery on record. And at 340% on the aggregate debt/income ratio, we are merely back to the levels we were at the bubble highs five years ago.

I find it doubtful that the debt ratio has managed to find its way back to a sustainable level, and Rogoff and Reinhart did the hard research showing that post-bubble deleveraging cycles last at least ten years. So in baseball parlance, we're probably no better than in the fourth or fifth inning. And don't forget that the wonderful 1982-2000 secular bull run was caused in part from the multi-year run-up in the all-in deb/GDP ratio from 160% to 260% — the correlation with the S&P 500 was large at 82%. To be sure, correlation does not imply causation, but there can be little doubt that the proliferation of credit products and ever-greater accessibility to leverage contributed immensely to economic growth and corporate profits during that virtually non-stop two-decade period of unbridled prosperity. Today, and tomorrow, the movie is continuing to run backwards and will prove to be an enduring drag on the pace of economic activity, not just in the USA, but globally.

Three other critical differences worth mentioning before moving on. In 1982. at the start of the secular bull run, the median age of the 78 million pig-in-the-python otherwise known as the baby boomer, the group which controls most of the wealth and has had a big hand in influencing everything in the past six decades from capital markets to the economy to politics, was 25 years old, heading into their prime risk-taking years and as such ushering in the era of aggressive growth and capital appreciation strategies. Today the median age is 55 and going on 56 and the first of the boomers are now turning 65— 10,000 will be doing so each day for the next eighteen years. And their tolerance for risk and need for income is considerably different than it was three decades ago. That much is certain.

The expansion in credit and the favourable demographic trends in that 1982- 2000 period helped generate annual economic growth, in nominal terms, of nearly 6.5% on average, taking the trend in corporate profits along for the ride. Not even the most bullish prognosticators see growth coming in anywhere near that pace for the foreseeable future.

And of course, while Ronald Reagan was no fiscal conservative, his worst sin was a 6% deficit GDP ratio, much of it being cyclical by the way, and a 28% federal debt/GDP ratio. Today the deficit is closer to 8% (there is a much larger structural component) and the federal debt/GDP ratio is about to pierce the 70% threshold. Not to mention entitlements being a much more acute ticking time bomb as the ponzi schemes are that much closer to facing insolvency without some tinkering. Remember — fiscal policy in the U.S. in the go-go 1980s and 1990s was all about receding top marginal tax rates and greater deductions. Everybody liked this so much that many of the folks sitting across the aisle from the GOP were labeled "Reagan Democrats".

No such bipartisanship exists today, nor is it likely to given the large degree of acrimony, so evident in the last presidential (and veep) debates. It may end up taking some sort of a crisis, in the end, to galvanize the two parties to work towards a resolution to the fiscal morass (as happened in Canada in the early 1990s). That Obama can never seem to get a budget passed or that Simpson-Bowles is collecting dust was not the politics of the Reagan-O'Neill accords of the 1980s. Even Clinton learnt how to compromise and work with the enemy (he was very good, by the way, at the Democrat convention — no doubt he would win another term running against either candidate, and it was so obvious that neither one really fully comprehends just how massive the fiscal problem is and the complexity and painful shared sacrifice that it will take as part of any viable solution).

The 1980s and 1990s were all about industry deregulation. That fostered a durable expansion of both the 'E' and the 'P/E' as far as equity market valuation was concerned. That is hardly the case today, is it? And the 1980s and 1990s were all about breaking down harriers to global trade, again allowing for greater multiple expansion. This cannot be emphasized enough, especially in lowering business costs. Today, trade tensions are growing and protectionism rearing its ugly head via surreptitious currency wars.

Sorry, but it ain't the 1980s and 1990s all over again, by any stretch. What the stock market has really experienced is a classic reflexive rebound from a depressed oversold condition, aided and abetted by radical government intervention, not entirely unlike what we saw from 1932 to 1936.

As I said, in 1936, it would have been foolhardy to have overstayed the party by extrapolating a vigorous bounce off the trough into the future. I recommend that people don't repeat that mistake. The reason why policy rates in most parts of the world are at or near zero percent is because risk is high. Especially political risk. Make sure this is acknowledged in every financial decision you make.

Moreover, in the 1980s and 1990s, the government was getting out of the way. Back then, if a publicly elected official asked "what can I do for you", the answer by most was "nothing. Thanks". Today, the same question is met with "where's my cheque''? In the 1980s and 1990s, the Fed was ushering in an era of disinflation, again a powerful way to expand the market multiple — which it did — as it led to better business decision-making and more efficient resource allocation.

Now the Fed is covertly attempting to create inflation so as to monetize our debt morass. Not only was government getting out of our way in the 1980s and 1990s, but the Federal Reserve found its moorings under the legacy of Paul Volcker, and followed years of what can only be described as a sound money policy. We have on our hands today, not just the Fed but many major central banks manipulating interest rates and relative asset values. It is imperative to recognize that as the Fed and ECB act in a manner today that has investors convinced that "tail risks" are being reduced, the cost of these unconventional policy measures are both unknown but very likely far-reaching, and have thereby introduced "tail risks of their own, even if not realized for years down the road.

Anyone who does not recognize the extent of the Fed's manipulation in order to generate a positive wealth effect on spending should not be in the wealth management business. Because managing wealth means managing risks...  and the Fed and other central banks have merely papered over the debt overhang by printing vast amounts of paper money. Once the inflation does come back, believe me, all hell will break loose, and the law of unintended consequences will rear its head. At that point, the Fed will have no choice but to do some very heavy backtracking and the game will be over. This again is being very forward- looking, to a fault perhaps, but the Fed, once it gets the inflation it so desperately wants, will he slow to respond at first but will end up having to unwind its pregnant balance sheet. One reason why gold bullion and gold mining stocks will prove to have been very effective hedges down the road (but when buying the companies, be very selective).

If you are bullish on equities, at least he bullish for the right reason. For the here and now, the correlation is dominated by the size of the Fed balance sheet. From 2000 to 2007, the correlation between the Fed's balance sheet and the direction of the S&P 500 was less than 20%. Since 2007, that correlation has swelled more than four-fold to 86%. This is the missing chapter in the classic Graham and Dodd textbook on value investing, published 80 years ago.

So no doubt, Ben Bernanke (as well as Mario Draghi have thought their balance sheet machinations have been able to engineer a buoyant stock market. This is the most crucial determinant of the positive sentiment underpinning valuations at the current time Lord knows, it's not corporate earnings, which are now contracting. Now profits are an absolutely essential driver of the equity market and the downtrend may be one reason why the major averages have basically been range-bound since QE3+ was announced on September 13th (in fact, through the daily wiggles, the interim peak was September 14th). But as high as the historical 70% correlation is between corporate earnings and the equity market, it is still dwarfed by that 86% correlation with the Fed's bloated balance sheet.

Call it the "new normal' — a term hardly bandied about any more than "fat tall risks' in those wonderfully prosperous 1980s and 1990s.

Just to reiterate — deleveraging, which is necessary and will inevitably blaze the trail for more sustainable organic economic growth in the future, is a dead-weight drag for the here-and-now. In fact, the total debt/GDP ratio, for the past 30 years, has a positive 82% correlation with the trend in equity values. Opinions are one thing, statistical analysis quite another. And common sense. Deleveraging is inherently deflationary. It's a painful process that typically involves years of rising savings rates and depressed growth in domestic demand which then feeds right into the 70% that matters for the equity market which is corporate earnings.

The over-riding problem of excessive global indebtedness relative to the income-generating capacity to service the debt remains acute,  notwithstanding the "don't-worry-be-happy" market mindset This is why central banks remain in aggressive treatment mode.

What else?

Well, Rich lays his bullish claim on the classic contrarian signpost of there being rampant pessimism. But is that actually the case? No doubt the latest AAII survey does show that fewer than 30% of individual investors are bullish on the outlook for equities. As I have said time and again, this is not some sort of classic contrarian play It is a deliberate shift in investor attitudes towards how best to diversify the asset mix with an eye towards generating 'risk-adjusted" returns. Meanwhile, many other survey measures actually point to a high level of optimism among those in the financial industry. Market Vane sentiment is 66% bullish, at the high end of the range. The Investor's Intelligence survey shows 43% bulls but only 26% bears. The Rasmussen investor index at just under 100, much like Market Vane, currently sits at the high end of the range for much of this cycle.

Beyond the survey evidence, look at the market positioning. The ICI data show that equity mutual fund managers are sitting on 4% cash — the exact same ratio that prevailed at the market peak back in October 2007 (the cash ratio in aggressive growth funds is only 3.5%). Bond fund managers are sitting on 7.6% cash. Managers of hybrid funds have also boosted their cash ratios to 9%. Also look at how the hedge funds have re-positioned themselves in the wake of QE3+ ... It is already evident that when the Fed tells the world that risk-free rates will remain at zero at least semi-permanently, capital will flow to risk assets. After a prolonged period of being cautious, the latest CFTC (Commodity Futures Trading Commission) data show that the net speculative long S&P 500 positions on the CME has swung violently since early September from a net short backdrop of 10,896 contracts to a net long position of a record 18,346 contracts (in both futures and options).

In other words, if you are bullish on equities, I wouldn't exactly be using depressed investor sentiment or "money on the sideline" market positioning as a reason.

The counterpoint that Rich likes to make is that the cult of equities is dead and this extreme pessimism is a bullish signpost. Sort of like the "Death of Equities' on the front page of BusinessWeek decades ago (though that front cover showed up in 1979, about three years prior to the market trough). There is this view promulgated that whatever the herd effect is in the retail investor space, you want to do the opposite. The problem with that is that in 2007, the individual investor began to pull out ahead of the institutional investor who was slow to raise cash (ostensibly buying into the consensus view of a 2008 "soft landing"... remember that one?).

First off, it is not clear when you look at ETF flows, that retail investors have totally abandoned the equity market or have completely shunned risk. For one, based on the numbers I have seen, the 42% weighting that U.S. households have as equities in their overall mix is smack-dab in the middle of the historical range. To be sure, outflows from strict capital appreciation/aggressive growth funds have been large and relentless, but a good part of that has reflected not just a shift towards ETFs but also "hybrid" or balanced funds that focus more on income orientation and less on generating alpha with beta. To be sure, and keep in mind the demographic overlay, there is a secular drive towards bond funds, but the vast majority of that (over $200 billion of net inflow in the past year) has been in "spread product'', mostly corporates. Less than $40 billion have actually flown into "safe" government bond funds. It's not like households are hiding under the table in the fetal position — if that was the case, assets in money market funds would have expanded $90 billion in the past year instead of losing that exact amount What individual investors are doing is a deliberate asset mix shift towards more diversification, less risk, and cash flows.

Finally, in terms of valuation, I would agree with Rich that we are not at extremes. But from my lens, the market is fully priced and with earnings now contracting and record margins being squeezed, the reduced prospect of more multiple expansion is likely to leave the major averages range-bound at best over the near- and intermediate-term. When Rich was the equity strategist at Merrill, he always focused on GAAP reported earnings. I concur. And on that basis, the trailing P/E ratio is now 15.5x. No doubt that is far from the blowout peaks we saw in 2007-08 and in 2000-01, but those were the only two cycles which saw the multiple go to radical extreme nosebleed territory (and look at those two bear markets — one was double the usual decline and the other was more than triple a normal cyclical downturn). But looking at five decades of history, we see that the average multiple at the peak of the market is 16x — we are a half-point from that right now. Of course the average peak multiple is far higher than that (46x), but what should matter for investors is what the multiple normally looks like at the highs for the market. By the time the multiple actually hits its extreme peaks, the market had already rolled over for an average of eight months— because the 'E' falls faster than the 'P', at least initially as companies take the writedown hits early on.

So in a nutshell, I am sure that Rich and I will agree to disagree. From my perspective, there are slices of the stock market that I do like (even if I am not excited for the S&P 500 as a whole). And being a long-time bond hull, it is the part of the equity sphere that behaves like a bond: Dividend growth. Dividend yield (though avoiding traps). Dividend coverage. Corporate bonds. Muni's. Canadian banks. Gold mining stocks (that now pay a dividend!). Energy and energy infrastructure. Consumer Staples. Discount retailers.

Beneath the veneer, there are opportunities. But I do not agree that the equity averages have more upside potential than downside risks from today's levels. I do not buy into the view that the fundamentals, valuation metrics, market positioning and sentiment indices are wildly bullish. I do buy into the view that central bankers are your best friend if you are uber-bullish on risk assets, especially since the Fed has basically come right out and said that it is targeting stock prices. This limits the downside, to he sure. but as we have seen for the past five weeks, the earnings landscape will cap the upside. I also think that we have to take into consideration why the central banks are behaving the way they are, and that is the inherent 'fat tail' risks associated with deleveraging cycles that typically follow a global financial collapse. The next phase, despite all efforts to kick the can down the road, is deleveraging among sovereign governments, primarily in half the world's GDP called Europe and the US. Understanding political risk in this environment is critical.

And that is my point. It is not about gross nominal returns as much as risk- adjusted returns — now more than ever. Getting it right for clients in the wealth management business means striving every single day to identify the risks, assess the risks, price the risks and then rigorously manage the risks. Having an appreciation of the risks doesn't necessarily make you ultra risk-averse, but what it does is empower you and lead you on the path of making prudent decisions.

Richard Bernstein and I may differ on the optimal strategy at the current time to achieve risk-adjusted returns, but I am sure on that last comment we are on the same page.

I look forward to his rebuttal!

 

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Fri, 10/19/2012 - 22:47 | 2905987 max2205
max2205's picture

Sure....don't forget the $40 billion at 10x coming into the market for the next 12-24 months.

Fri, 10/19/2012 - 23:53 | 2906038 Offthebeach
Offthebeach's picture

The 300+million Honey Boo Boo Muppet Americans don't know any of this. They're going to be one large crew of FSA and subsidize my racket. _

Sat, 10/20/2012 - 11:36 | 2906357 markmotive
markmotive's picture

...or you can go to the other extreme...

Marc Faber: A Global Crash Coming!We are ALL Doomed

http://www.planbeconomics.com/2012/10/14/marc-faber-global-crash-coming-...

Fri, 10/19/2012 - 23:28 | 2905995 Yen Cross
Yen Cross's picture

I saw enough "BTFD", on CNBS  earlier , thank you!  I can't wait for the Asian markets to open. They filled the gap on the Friday open last week. I'm guessing they will do the same thing again. Then she goes kerplunk.

 Either that or she just goes ker plunk from the open!

  Edit; Japan at 200x is going on a (offshore asset purch(ass) spree), to devalue the Yen. Is that better fellas?

  Since we are are talking about 10x~+ asset puchases.

Sat, 10/20/2012 - 02:46 | 2906118 GoinFawr
GoinFawr's picture

"I can't wait for the Asian markets to open"

Hehe, you're dyed in the wool YC. U h(e)artfx. 

Have an excellent weekend.

Fri, 10/19/2012 - 23:05 | 2906000 vast-dom
vast-dom's picture

" But looking at five decades of history, we see that the average multiple at the peak of the market is 16x — we are a half-point from that right now. Of course the average peak multiple is far higher than that (46x)..." But does 16x this time around adequately take into account The Fed's meddling? Does it factor in all of our latest greatest accounting tricks and hyper-leveraged banks? My point is that these rations and charts cannot begin to accurately correlate to this unprecedented central bank ponzi meddling; in other words, the continuous QE is still distorting targets, E and P, valuations, etc etc etc

Sat, 10/20/2012 - 07:40 | 2906158 Everybodys All ...
Everybodys All American's picture

The E reported by financial institutions should be taken with a massive grain of salt. What would you expect when marked to myth accounting rules the landscape. So yeah 16X earnings doesn't even approach reality right now.

Fri, 10/19/2012 - 23:48 | 2906033 DoChenRollingBearing
DoChenRollingBearing's picture

I have more faith in Rosenberg, having read some of his stuff here at ZH, I only saw a smidge of their conversation at CNBS, so I cannot comment on that.

While I would agree that stocks may indeed have a good case (or at least a semi-good case) as a decent part of a diversified portfolio (and certainly better than bonds), I think that stocks are (maybe) overpriced.  I can hardly wait to see what Barron's (the Wall St. paper on teh weekends) has to say tomorrow...

IMO, everyone should have 5% (or more, I do!) of their net assets in physical gold, the single best diversification there is.

Sat, 10/20/2012 - 01:44 | 2906098 Essential Nexus
Essential Nexus's picture

Summary: Just buy gold.

Sat, 10/20/2012 - 10:42 | 2906260 Inthemix96
Inthemix96's picture

Duke of con dao?????

Why do you persist in the bollocks you post that no one cares for?  Have you nothing better in your life than to post inane shit that no one even watches never mind cares about?  People like you dumbfound people like me, why dont you piss off and get something more constructive in your obviously shallow life?

Stop posting bollocks mate, no one here even cares about fucking mixed up videos????

You should even consider the help of a shrink if this is all your life is worth.

Sun, 10/21/2012 - 00:52 | 2907356 Duke of Con Dao
Duke of Con Dao's picture

funny you made nearly the same comments for this vid:

YouTube - 'Nazi Party? Adolf Hitler... You Didn't Build That!' sez President Obama

why? cause you are an anti-semitic Hitler loving twit IntheMix96! 

Sat, 10/20/2012 - 02:45 | 2906116 ebworthen
ebworthen's picture

Good points.

In the early 80's we still made can openers and toasters.

The baby boomers had some belief in the rule of law, property rights, bondholder rights, and that the stock market was investing in productive industry that created career employment.

Fast-forward 30 years and the reality and perception are 180 degrees opposite.

Rule of Law nebulous or non-existant, production and career employment tenuous at best, and the markets a propped casino.

I will never, ever trust the markets with my hard earned money again.

EVER.

Sat, 10/20/2012 - 08:31 | 2906179 Cursive
Cursive's picture

 

It is imperative to recognize that as the Fed and ECB act in a manner today that has investors convinced that "tail risks" are being reduced, the cost of these unconventional policy measures are both unknown but very likely far-reaching, and have thereby introduced "tail risks of their own, even if not realized for years down the road.

 

Unknown?   Hardly.  Look at Germany's Wiemar Republic as one example.  What about the fall of the USSR's centrally planned economy?  Anyone who doesn't have his head up his own ass can see where this Fed-induced mania will end.

Sat, 10/20/2012 - 08:46 | 2906185 youngman
youngman's picture

Well I think the fireworks are going to start after the elections.....a winner that day...doubt it...lawyers will sue in close states...then we have a lame duck congress...the fiscal cliff...and probably something with the EU and the ME will be in play....its going to get very exciting...

Sat, 10/20/2012 - 09:41 | 2906207 RiverRoad
RiverRoad's picture

Exactly.  And Congress is no doubt thrilled that there will be a million different things they can blame it ALL on.

Sat, 10/20/2012 - 10:41 | 2906259 Keegan11
Keegan11's picture

Spot on youngman! Dude, there's going to be so many lawsuits, Chicago Dem-thugs stuffing ballet boxes. Look out - prediction, late boxes show up mysteriously in Wisconsin and Ohio. That know-nothing gets re-elected. Depressing. And let's say Romney wins, you think O is going to cooperate to avert this cliff? He'll no! Why would he care to suddenly be a statesman?? Pfffft

Sat, 10/20/2012 - 09:34 | 2906203 RiverRoad
RiverRoad's picture

You bet your bippy "this time it is different"!  It definitely ain't the 80's --90's anymore.

Sat, 10/20/2012 - 10:19 | 2906231 cjbosk
cjbosk's picture

Post election, this thing gets sold, and sold hard. Everyone will face the music, but I'm fairly confident it doesn't happen until post election.

Sat, 10/20/2012 - 10:25 | 2906237 Go Tribe
Go Tribe's picture

That interesting, thanks for posting it.

Couple things here: He's wrong about deleveraging having to be a dead weight on the economy. It doesn't HAVE to be. Witness Iceland here http://www.bloomberg.com/news/2012-09-26/is-remedy-for-next-crisis-burie...

You have to do it right, however. TBTF goes out the door for one.

The other thing: glad he got into diversification and bond holdings. Retail is still invested, but diversified and not all debt is as potentially toxic as US government debt.

Sat, 10/20/2012 - 10:58 | 2906278 disabledvet
disabledvet's picture

Leaving aside the obvious fact that "but for Friday" the bear case has been dead wrong to the point of extinction there is everywhere and always the problem of what takes the market lower BESIDES lower revenues and profits...which clearly we have and clearly we should fear if you are long....or bullish equities. Are interest rates going up anytime soon? No. Is Federal spending going to decline? No. Is the war effort in full retreat? In fact it is ramping up. Can the Fed destroy the value of the dollar at will? Yes. Is it? Yes. Is oil 80 bucks a barrel higher than it should be? Yes. Natural gas spiking to a ridiculously high price because of this Fed phucker? Yes. Is the media wilding...downloading ideas without even the hint of paying for them and creating products you and I don't need but buy anyways because we as humans are hard wired to go cuckoo for co-co puffs? Yes. Do we hat ourselves and the puckers who do this to us/ourselves/our essence/our being thus causing us to shout obscenities at the TV and demand revolution on Zero Hedge? Yes. Does this make us bad people? No. It does make us crazy though. I recommend some poetry, herbal tea and some type of vitamin supplement. Good sex doesn't hurt either...if you can find it. And indeed...turn off the television...read a book on the amazing attributes of Asparagus and try yoga. Any questions?

Sat, 10/20/2012 - 12:00 | 2906401 DowTheorist
DowTheorist's picture

The market seems to be discounting serious inflation ahead, which may distort "normal" fundamentally-based readings. In case of doubt, I tend to favor sheer market action. As per Dow Theory, the stock market is in a primary bull market. Such primary bull markets have long legs. They aren't just a "tradable" rally. The average gain of a primary bull market averages ca. 40%.

Furthermore, 70% of the primary bull market signals end up in profits.

Here are 5 reasons for the bullish long term case (1 year or more)


http://bit.ly/On8jUg

Even if the current bull signal was a "failed" bull signal resulting in losses (30% probability), this wouldn't be the end of the world, since we would see a bear market signal if markets are to go substantially low. Since the Dow Theory tends to be more responsive than moving averages, sell signals are flashed at ca. 10% from the top. Not so bad and in the meantime it allows the investor to participate in the trend until exhausted.

Thus, the Dow Theory complies with the basic rule of investment: “Cut your losses short, let your profits run”. This is accomplished thanks to the Dow Theory trailing stops. More on them here:

http://bit.ly/OAhUXt

Under Dow Theory, we always know how much we stand to lose whereas the profits are open ended.

Good fundamental-based forecasts, like the one of this article, may be useful in determining the risk/reward ratio of the prospective stock investment. If we believe the forecast is likely to be proven right in the future, we may moderate our profit’s expectations. Thus, not all Dow Theory bull markets are created equal. Some return 80% whilst others return a meager 25%. The macro view may help us determine the odds.

Nobody said investing was easy…:=)

Sat, 10/20/2012 - 18:10 | 2906934 lolmao500
lolmao500's picture

Compromise... aka spread your butt-cheeks it's about to hurt.

Sun, 10/21/2012 - 10:52 | 2907594 steve from virginia
steve from virginia's picture

 

 

Rosenberg:

 

"Just to reiterate — deleveraging, which is necessary and will inevitably blaze the trail for more sustainable organic economic growth in the future, is a dead-weight drag for the here-and-now."

 

What wishful thinking! What utter bullshit.

 

Our capital is gone never to return, deleveraging a) reflects reality, and b) will never bring back extinguished capital, c) the more capital we moderns squander the faster all our remaining accessible capital is exhausted ... so that d) attempts to make our economic system more functional (by deleveraging) are ultimately self-defeating.

Sun, 10/21/2012 - 21:20 | 2908680 Tim Brasco
Tim Brasco's picture

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