Barrons: A Really Different Rally, Again.

I'm excerpting this piece which ran in this weeks Barrons. The investment manager they quote is not me but we share some of the same views about things going forward. {Highlights mine. link at the end.}  Note as well that the discussion below about the stock market mirroring its 2004 performance is one that seems to be increasingly viewed as consensus for next year. 

"SO, THERE'S THIS GUY WHO E-MAILS ME his market outlook every so often. Actually, a lot of guys do this, and all of their offerings are happily accepted, if only for what they hint about prevailing investor attitudes. But this particular guy is unique in at least two respects. He has no interest in having his name placed in print or pixels. And he is the one commentator I'm aware of who both turned aggressively bearish virtually at the all-time market peak in 2007, then in April began insisting that the March market lows would not be challenged, and that a new cyclical bull market had a long way to run.

I'm sure there were others who can claim a similar achievement. And there were plenty who were bearish for a good long while on the way up, then more optimistic at some stage of the market washout; maybe some even caught most of the rebound. This guy, though, is the one whose dispatches I saw as the very uncertain market trajectory took shape, illuminating the real-time contrast between his high levels of conviction and clarity and the deep ambivalence and confusion enfolding most of us.

He doesn't claim any magic formulas or proprietary systems. His approach is eclectic and inclusive, ranging among economic, technical, historical, valuation and sentiment inputs. He's in the business, as a broker, and shares his missives with clients. And he still doesn't want to be identified. But his current thinking isn't less valuable for being presented without attribution....

....{He believes that t}he severe decline, having morphed into a global financial panic, culminated in a shorter, more painful span than he or most any other analyst anticipated. Our guy figured the stock-market downside wouldn't be done until 2010. But prices collapsed so rapidly that by April he made the call that the low was in, would not be re-tested and a new bull market was upon us.

....Keying off credit improvement, profoundly panicky investor sentiment, an incipient pickup in leading economic signals and much more, he wrote: "We are very unlikely to have a retest of our March 9 low. Don't expect a big pullback until the S&P 500 reaches the 930-940 level within the next two months [remarkably spot on]...The S&P should reach 1300 by next March."


....With his latest effort, "Ready to Breakout," from last Monday, he pushed back against some common critiques of the recent market repeatedly stalling just above 1100, where we now sit.

-To the observation that riskier, smaller and financial stocks have underperformed since mid-October -- presented as signs of a maturing rally -- he notes that this occurred from early May to early July as well, before the former pattern of rising risk appetites resumed.

-It's become common to point to the extreme low 17% reading for admitted bears in the recent Investors Intelligence investment-adviser survey as a sign of too much optimism for stocks to continue higher. It can't be dismissed as irrelevant. But the percentage of bulls was 48%, a not-very-alarming level, with an abundant 35% of folks expecting a correction -- the most in many years -- accounting for the balance.

-He adds that in blast-off rallies from depressed levels such as this one and the one in 2003, the rally's end is usually accompanied by much more overbought conditions and enthusiastic psychology than we now see. This was true for sure in late 2003, based on a sampling of sentiment measures laid out by Ned Davis Research last week.


-Our guy writes that he's "dumbfounded by the refusal of the media, investors and economists" to acknowledge the prospect of a V-shaped economic recovery given the pace of improvement in employment, industrial production and leading indicators.  He's calling for the S&P to run to 1200 or to 1250 by mid-January, hitting a high some time in the first quarter, followed by a 10% correction into late summer or fall, but not one leading to a resumption of the post-2007 downtrend. This would echo, roughly, the 2004 market, in which the economy improved as the market had anticipated but most of the equity upside was inked in the prior year.
No one has a monopoly on predicting the future; no one even holds the franchise rights. And this particular streak of expert trend-riding could end any time. But if any forecasters are ever worth lending an ear, the ones who exhibit mental flexibility and analytical rigor are most worth it."

Link:  http://online.barrons.com/article/SB126057496212588073.html?mod=BOL_hps_popview#articleTabs_panel_article%3D1 {Subscription may be required.}

*Long ETFs related to the S&P 500 in client accounts.