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When bears stop growling, bulls should start worrying

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Legendary Boston-based value investor Jeremy Grantham has hit out at the media, calmly but firmly.

No, he added, he hasn’t abandoned his longstanding warnings about U.S. stocks. No, he hasn’t decided that high valuations are here to stay forever. And no, he hasn’t abandoned his signature belief that over time the market will return to average valuations.

But, Grantham said, he now believes that U.S. stocks will fall much more slowly than he had previously thought.

Grantham added the U.S. stock market will probably deflate more slowly due to a variety of factors, including the role of the Federal Reserve.

But he warns that long-term regression to the mean is little better for investors than a short-term one. Instead of losing lots of money quickly and then making it back, you just do poorly for longer.

One of the oldest and soundest adages on Wall Street is that a bull market doesn’t peak “until the last bear turns bullish.

Markets are exercises in crowd psychology. When bears stop fighting the trend, there is often little further to rise. Conversely, when everyone has given up on stocks, there is usually little further to fall.

Grantham, is among the most respected bearish voices on Wall Street.

A few months ago I had lunch with another leading bear, and he also seemed to have given up the fight. No, he had not become optimistic. He had simply become exhausted waiting for the correction, and had decided to go with the flow.

I don’t dare say that this means the bull market which began in 2009 has finally peaked. But I will say that when the biggest bears seem to lose their growl, keep on your toes.

Source: Bloomberg

Junior Trader Stefan Panteleev


 Varchev Traders

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