With bulls panicking as visions of a big market drop – if not crash – suddenly dancing in their heads amid the confused babble of growing stagflation risks, an imminent start to tapering, Chinese property sector defaults, a global energy crisis and a looming debt ceiling showdown, an unexpected boost to their optimistic views has emerged courtesy of Dennis Gartman who in his latest Gartman Letter (now available only to “close friends and family”) writes that the bull market is over and the “bear market has begun in earnest.”
We excerpt the key sections below:
I begin this week by noting that the term “transitory” has itself become transitory as Fed Chairman Powell stated clearly before Congress that inflatiion is now proving to be more serious and likely to remain extant far longer than he had previously thought and had promoted. Stocks and the bond market responded as they should: manifestly bearishly and that having been said I shall state for the record that the bull market in equities has ended and that the bear market has begun…in earnest.
* * *Earlier this week I sent the following note to the producers of the two TV shows I appear in weekly: Stuart Varney’s show on Mondays on FOX Business and Maria Bartiromo’s show on Tuesday, also on FOX Business:
Uptrend lines have been broken; and that’s bearish;
But margin usage appears to be rising again and that’s bullish;
But the volume on the upside is less than the volume on the downside, so that quite bearish;
But the Fed remains expansionary, so that’s quite bullish;
But the geo-and-national political environments are confusing, so that’s modestly bearish;
But the economy is still strong so that’s bullish;
But consumer sentiment is waning, so that’s increasingly bearish;
But the debt ceiling will be extended… as it always is…so that’s bullish…sort of;
But the overall debt level is preposterously high, so that’s disconcertingly bearish.
The bearish thoughts out-numbered the bullish ones marginally, but since then, very real technical damage has been done and the bearish news that was only a bit “weight-ier” than the bullish news has grown materially more severe. For my own account, I’d reduced my exposure to the markets a few weeks ago having done so by nearly half and on the remaining shares I have written calls, thus reducing my effective exposure to 20-25% net long… and what I am long of are high dividend paying blue chips with a focus upon energy. Oh, and I’m very nervous after the previous two-day rally that is failing as I write!
Last week I ended this discussion with the following, highlighted statement: Sell into the current strength. I was fortunate to have been so forthright. I stand solidly by that closing statement.
RECOMMENDATIONS:Regarding equities, we have been in…until quite recently…. what I’ve referred to in the past as a late-stage speculative overindulgence. This has not quite been a Bubble but it has been very close to one, predicated upon and indeed highly dependent upon a steadily expansionary federal reserve policy. This has taken equities to levels of what I perceive as unprecedentedly high over-valuation made evident by the chart included here this morning commonly referred to as the Buffett Indicator which compares the value of the Composite Market to our GDP. This indicator peaked at the top of the Dot.com Era at 150%; it is now approaching nose-bleed territory in late September of 225%! Stocks are expensive and are shockingly so.
Maybe the bears will luck out and this once Gartman will be right. Then again… no.
