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Bulls & Bears
This past week's Bulls & Bears: Gary B. Smith, Exemplar Capital managing partner; Pat Dorsey, Morningstar.com director of stock research; Scott Bleier, HybridInvestors.com president; Tobin Smith, ChangeWave Research, and Matt McCall, Penn Financial.
Trading Pit: Stocks 'Spring' Back Into Action -- Did the Bears Just Go Into Hibernation?
Forecast for Wall Street: all clear? Stocks were all over the place this week, but finally ended on a big up-swing, making it one of the best weeks of the year.
Did the bear just get scared into hibernation?
Matt McCall: From the action I have seen this week it leads me to believe the bears have gone back into hibernation. The combination of falling oil prices and the Bear Stearns blowup tells me the worst is behind us and that investors need to begin looking for buying opportunities.
The falling oil prices were caused by hedge funds and big money liquidating positions that were extremely leveraged. Now that the speculators appear to be exiting not only oil, but also other commodities it will lead to a high cash position. Because they must put this money to work, the funds will look for the best opportunity at this time and that happens to be stocks. The commodity trade is over in the short-term; bonds are overvalued, so that leaves one place to make money -- stocks. So yes, the bears have exited the building and will be forced to cover their short positions as the market begins to rise.
The overall market reaction to the Bear Stearns blowup was very bullish for the market. Investors have been looking for the "catastrophe" news that would send the fear level to new highs and we got it. What's amazing about the situation is that investors began buying only hours after the news was released. This is a perfect indication that the market is more concerned about market uncertainty than bad news. The release of better than expected earnings from a host of brokers helped diminish the uncertainty and has brought life back into the financials, which will be the leaders of the next market rally.
Tobin Smith: No. The markets big fear has been a real consumer led recession and now is how deep will the recession be...
If oil prices come down to 85 and stay there for a few months, that will lower depth of consumer spending pull back somewhat.
But it is the consumers' house value and the ability to refinance (or lack thereof) that is the big worry on Wall Street.
Gary B. Smith: Yes. Why? In five words: The Fed has our back! Translation: The bear is dead. As for dropping oil and the impact on the market, I am not really sure the worst is over for oil, but that doesn't have too much impact for the market. I still wouldn't touch oil for a long-term investment.
Pat Dorsey: The fear we are going to have a full-blown financial panic is over. That level of fear has left the markets. But let's not kid ourselves; we still have a housing market with a lot of unsold homes and a high number of foreclosures.
Scott Bleier: The sacrifice of Bear Stearns was the moment of maximum stress, pressure and pain for Wall Street.
It's like a nuclear bomb went off; there is still plenty of radioactivity around, but investors can now come out of their bomb shelters and begin buying.
The nuclear bomb was excessive leverage and borrowing by financial institutions like hedge funds. And they have been liquidating anything that is not nailed down. But that liquidation will not last forever and is actually almost over
The fall in commodity prices was long overdue and part of the unwinding process. Dropping prices will help the consumer if they get low enough -- but they are still way too high and will be damaging.
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