Hat Dance

I say, we can go where we want to
A place where they'll never find
And we can act like we come from out of this world
Leave the real one far behind
--Men Without Hats

If you're a contrarian, it's hard to view 'avoid stocks' missives by the likes of Tony Robbins and Mark Cuban and not feel at least a pang of bullishness. Mainstream media headlines have been getting into the act as well.

Tempting. Very tempting. When bearish views become popular it's often time to turn the hat around.

That said, I've long thought that a prolonged bear market--one that leaves few standing by the time it's over--is likely to chew up bulls and bears alike. One way this occurs is thru vicious trend reversals that sooner or later take out those who are persistently optimistic or pessimistic.

Another purging mechanism relates to the prolonged duration of weak prices, and the gradual darkening of social mood that accompanies it. Slowly but surely those who were formerly bearish view declining prices or seemingly grossly pessimistic sentiment as rationale for joining the bull camp. Subsequently, another bear phase takes them out. Metaphorically, it's like the individual who correctly foresees a killer storm coming and heads down to the cellar, only to be prematurely lured out of safety during a temporary break in the clouds.

We need look no further than Japan for an example of just how long post-bubble bear markets can last. The Nikkei is entering its third decade of malaise.

From where I sit, it does seem possible that we may be close to a 'tradeable low,' where those who are agile might slap on some tactical long exposure for a trade. I've been doing just that over the past coupla days. My preference is for names that have been pounded down, are cash rich, and have little debt.

Frankly, I think some of these names are starting to look attractive from a pure valuation perspective (see for example GPS, MSFT). But the macro environment remains unfavorable and likely to press undervalued issues lower still.

Classically, generational market lows occur when stocks on average trade in single digit PE multiples and sport dividend yields >6%. Currently, we're only about half way there (altho I do suspect that we'll ultimately arrive at this destination).

Meanwhile, I've kicked out my 'special' positions in bonds and the USD. If we get a bit more weakness, I'll jettison my small short position as well, at which time I'll be long a small basket of stocks along w/ some SLV.

positions in GPS, MSFT, SH, SLV