Barton Biggs Believes We are Close to a 30-50% Bear Market Rally
A little background on Barton Biggs before we start. He currently runs Traxis Partners, which is a hedge fund that is based in New York City. Before that, Biggs was the "chief global strategist" at Morgan Stanley. Barton Biggs made some very public declarations about the future movement of certain markets and sectors, some of which came true and some of which were wrong. He might be best-known for his call that the dot com bubble would burst and lead the United States into a recession (which it did).
Barton Biggs recently declared that we are in for the "mother of all bear market rallies." Biggs points out that even in major bear markets (such as the Great Depression), there are still massive bear market rallies.
Biggs points out a number of reasons why he believes that there will be a large bear market rally. They are:
1. Sentiment is very negative. According to many different pieces of data, he says, we are at "record" levels of bearishness.
2. Hedge funds, pension funds, mutual funds and individual investors are sitting on piles of cash.
3. Valuations are historically cheap.
4. Stock markets have been "obliterated" and are oversold. Biggs says that "even deat cats bounce."
5. Various stimulus packages will soon start to have an impact on the economy.
6. Members of the Bush and Obama Administration will learn from past mistakes and steer the economy out of harm's way.
7. The "fabric for economic healing" is developing - this includes rising wages and a dropping Consumer Price Index.
8. The drop in commodity prices will benefit the United States and the United States consumer.
9. Deleveraging might be "two thirds done".
Biggs makes the argument that we are probably "due" for a 30-50% bear market rally.
You can either believe the argument that Barton Biggs puts forth, or the argument that says that we are going to retest the lows. Those who disagree with Biggs will point to the fact that the government can't keep putting together these bailout packages forever, and that eventually the economy and stock market will have to swallow a bitter pill. They say that the economy is getting worse and company fundamentals are declining. They say that there will be small rallies, but nothing close to a 30-50% rally.
It should be pointed out that Biggs predicted in May of 2008 that the S&P 500 would climb to a record by the end of the summer. This obviously didn't happen. He also said that the US economy would grow in the second half of 2008 - this won't happen either.
What do you think? Is Biggs right? Are we due for a major bear market rally? Or is he wrong?
Source: FT.com - We are in for the mother of all bear market rallies
Filed under: Trader Profiles | The Economic Meltdown | General Market News