Same Old Gloom & Doom in a New Package

07/21/2010 12:30 pm EST


John Bollinger

President and Founder, Bollinger Capital Management

John Bollinger, editor of Capital Growth Letter, says bearishness is more extreme than he’s ever seen it, but it’s not the end of civilization as we know it.

In the light of my survey of the bearish camp, it seems to me that the sentiment numbers from AAII and Investors Intelligence grossly understate the true bearish sentiment out there. Some of the rants I encountered were amongst the most extreme I have ever read, and I've been reading the hard money literature for a long time.

If some of the forecasts were actually to occur, the end of civilization as we know it would result. One guru is forecasting a more than 90% fall for the Dow Jones Industrial Average.

Were such a decline to occur, it would likely be a result of the disintegration of society as we know it; if not, such a loss of value in the equity market would surely trigger an Armageddon-like period. If the extreme bears are even partially right, the only things worth owning would be water, food, guns, tools, ammunition, and pharmaceuticals.

Simply put, I think that such forecasts are irresponsible at best. The US is still a going concern, and unless one sees the complete collapse of capitalism, it is likely to remain so. That means that bear markets can be expected to be bear markets: 30% to 50% that run a year or a bit more.

For as long as I have been in this business, the doom-and-gloom crowd has been trumpeting the end of the world. Three decades ago, a pair of famous economists were even known as Dr. Doom and Dr. Gloom. The various versions of Armageddon they foresaw have failed to come to be, though perhaps they might not see it that way.

Today, Nouriel Roubini seems to have taken both the Dr. Doom and Dr. Gloom monikers that once cloaked the shoulders of Henry Kaufman and Albert Wojnilower of Salomon Brothers and First Boston fame, respectively.

As the doom-and-gloom set scans the globe, they see hints of end-time everywhere. China seems to be the latest stop on their tour. There they see another housing market waiting to explode and a stock market they see as being moribund for a decade or more.

Two things strike me as ringing false. First, though China may have problems galore, China also has huge growth potential. Two, though there is no doubt that their real estate markets are overheated, in China the purchase of most properties involves large down payments, and recourse loans are the norm.

Perhaps I am being ignorant, but I have an optimistic streak that suggests that no matter how bad things get, we’ll find a way to get the sticky side down and back on the road. At least that has been the experience of my generation and prior generations for a long ways back.

Yes, it could be different this time, but I have yet to see a good explanation of how/why.

As hard as it seems to imagine, our commodity composite is rallying and not far from making a new high. The recent lows were in the 188 area and the recent highs were in the 205/206 area, with a latest post of 202.28.

With all the talk of a double dip recession, falling commodity and basic material stock prices, I fully expected to see quite a lot of deterioration when I updated the data and pulled up the chart. But, much to my surprise, I found the composite above its rising average and just a few points from a breakout.

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