Quite often people write to me (or comment on this blog) asking why I am a bear.
Let me first state that I am quite aware of a couple of reasons why a person shouldn't be a bear:
(1) The whole world is against you.
From the investment banks, to CNBC, to Jim Cramer, to the brokerage
houses, everyone on the planet wants the market to go up forever. There
is a huge, huge, huge vested interest in the markets going skyward for
all eternity.
(2) No one gets rich being a bear.
Fortunes like Warren Buffet's are made by investing in stocks that reap
multi-thousand percent gains or more. There is no one on the Forbes 400
that got there by being a bear.
Having said that, allow me to explain myself and hopefully set this question to rest.
I want to be very clear
about why I am disposed the way I am to shorts and puts instead of
longs and calls.
Personality
Impatience:
I'm not the most patient soul in the world. And the fact is that
markets fall much faster than they rise. For instance, on February
27th, 2007, the market plummeted over 500 points in just a few hours. It
takes weeks to go up that much (usually). So I'm drawn to fast-moving
markets.
Worrywart: I'm
a worrier by nature. I wouldn't go so far as saying I'm a pessimist,
but usually I tend to see the things that will go wrong faster than I
will see the things that will go right. Hence - - bear-dom!
Unconventional:
Somehow I'm wired to want to be different. I like to stand apart from
the crowd. Per my introductory paragraph, being a bear is by its very
nature weird and different. If you happened to be this way during the
1980s and 1990s, it's also terribly unprofitable! I guess I could file
this under 'Irrational', but it's part of my personality, so I put it
here instead.
Economic
The Macro Economy:
There is simply too much evidence of a sea change afoot for me to
ignore. When I was growing up in the 1970s, things were generally
pretty bad for America. We were coming out of Vietnam. There was
stagflation. Carter was president. Media images of long gas lines and
unemployment lines were a daily fixture. And out of that malaise came a
huge resurgence. America was essentially "basing" for a very long time
and exploded into success, wealth, and power.
That doesn't last
forever, folks. Once you're really, really fat and really, really rich,
you get soft in the middle. There is way too much mega-wealth sloshing
around for anyone to believe that the U.S. is a lean, hungry machine
waiting for burst into newfound success. Everyone in the Forbes 400 is
a billionaire now.
Don't get me wrong, I love America, and I
remember well during the early 1980s the feeling of pride that America
was on the move again. But things move in cycles, and a big down cycle
is coming. The grotesque wealth among a powerful few is a harbinger of
a change. The forthcoming IPO of Blackstone is just another sign of
this.
Long-Term Charts:
I'm a chartist. I believe in what charts can predict. And every
long-term chart I see (and when I say long-term, I'm talking about over
a century in some cases) absolutely screams "TOP!" to me. And if you
study the charts well, it doesn't predict a few hundred points off the
Dow. It predicts a cataclysm. I want to profit from it.
Observation
Social Observation:
One of the few verbs I remember from four years of Latin in high school
is 'speculare', from which we derive the term 'speculate.' This verb
doesn't mean "to gamble" but instead means "to observe." I am a
speculator, and as such I am an observer. I consider myself pretty
tuned-in to the social mores and climate of the U.S. and, in
particular, the Silicon Valley where I reside.
I can tell you
everything I see is far more indicative of a late 1990s style arrogance
and bravado than a mid-1970s humility from which great companies like
Apple and FedEx were born. What kinds of companies are being born
today? The United States is populated in large part by a young
generation that has never experienced a bear market in their lives.
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And there we have it. As the tired cliche goes, the good, the bad, and the ugly. Today's market had enough interesting things going on that I could have spoken about it instead, but I felt it was high time to tell my thousands of daily readers just how my head was screwed on, for better or for worse. Good luck to you.
