FYI | Feb 10 2012
by Peter Switzer, Switzer Super Report
Believe it or not, the famous (or is it infamous!) Dr Nouriel Roubini, also known as Dr Doom, has become Dr Boom – at least for the short-term.
This is the guy credited with picking the global financial crisis (GFC) and market collapse, and he has since travelled the world scaring the pants off investors and businesses. He is the US equivalent of Associate Professor Steve Keen, who also predicted that debt would cause serious economic and market collapses. However, Keen has also become famous (or infamous!) for predicting a house-price Armageddon in Australia.
CNBC reports that a number of bearish experts they follow have reworked their market views and are becoming bullish, but the most notable of all is Roubini.
“We’re a believer; we’re celebrating. We think the rally has legs,” explains Gina Sanchez, director of equity and allocation strategy at Roubini Global Economics.
How long will it last?
That said, Dr Doom won’t stay Dr Boom for long because he thinks the short-term player will want to get out of stocks again by the middle of this year.
This analysis is consistent with a rule of thumb that often works, which is encapsulated in the ‘advice’ I quote often – “sell in May and go away”.
This worked out last year, as well as in 2010 and 2009 and it has a pretty good track record as far as moneymaking rules go. There is also some logic in the rule in as much as some Americans go on summer holidays after May and close out their positions after experiencing a nice first few months of the year.
The “sell in May” theory also links well with the historical and near hysterical commitment of the Yanks to a Santa Claus rally, which is then often followed up by the January Effect. This basically says that what happens in January will determine how the market will finish the year.
So some wise guys could punt on Santa coming to Wall Street in December and then back the likelihood that January will still deliver nice returns, then sell in May, only to do it all again come December.
Roubini knows Europe is now getting money from the European Central Bank (ECB) via their domestic banks and by March there should be some more funds available from the rescue facilities that have been put in place for the battling indebted eurozone. This will keep the economic show on the road, but eventually recession fears added to stocks going higher will result in a retracement.
No major sell-off tipped
All of this is on the cards, but I don’t see a big sell-off like last August unless something comes from left field.
By the way, the Dow Jones index is only 10% off its all-time high, which was set in late 2007 before the GFC kicked off! So if Roubini is right and the market keeps going up, when it hits and beats the all-time high, there will be short-sellers, bears and hedge-fund operators who will want to lock-in profits and test investors’ resolve to stick to stocks.
For anyone who has been out of the market, the big question is whether you want to go in now or wait for a possible sell-off. Of course your big challenge is identifying whether we are at the start of a substantial rally powered by the possibility that bad news won’t turn up this year. That’s a really big gamble and we the Switzer Super Report will try to help you make the right decision.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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