I've laid out the bear case here but this is an Intermediate term concern. Longer term, the conditions for the market from a sentiment perpective is pretty solid.
I read an article today in the National Post about how the recession has been widely recognized by pop culture and incorporated into TV shows and movies. For example, a Simpson's episode aired in March whereby Homer lost his home due to a foreclosure after he took a home equity line of credit to throw a mardi gras party. I also recall earlier in the year a CSI episode whereby they mentioned the "market meltdown” and an episode on the show House whereby one of the characters lost his shirt investing in a hedge fund. In addition to that, I also remember economic and stock market related jokes being used big time with the late night talk show hosts late last year. 2 months ago SNL did a skit which featured Roubini! Thus, without a doubt, the main street public and the non-financial media has become fully aware and fully embraced all of the negative news of the stock market and the economy last year.
History has shown that by the time the non-investment public i.e. the dumbest of the dumb money, realize a trend in the market that trend has very likely run it's course or is about to.
The movie "boiler room" came out in 2000. Near the beginning of the movie the main character mentioned his desire to get rich quick and mentioned how people did so with internet stocks. I also remember a line in the 2000 movie "meet the parents" whereby the character played by Owen Wilson mentioned how he made a fortune in internet IPOs. I also remember right near the July 2002 lows how Jay Leno was using stock market related jokes.
To further confirm positive long term sentiment foundations for the market consumer confidence levels are rising from historic low levels and the underlying tone of the market is one of cautiousness. Government authorities from around the world are saying that the economy may have bottomed but say don't expect a sharp rebound. Another popular notion is that the economy is now in a "new normal" due to the deleveraging that has and will continue to take place and in this "new normal" we can only expect modest growth at best for many years to come. This kind of sounds like the inverse of the "new era" argument that was popular in the late 1990's which claimed we would have above average levels of growth as far as the eye can see due to the internet and technology revolutions....we all know how that turned out.
Look, I'm not saying that none of the bear arguments hold water.....I'm a believer in many of them....but none of what the bears warn about has to necessarily play out in the near future....Rome did not fall over a period of 2 years. It could be years or even decades before we see the "end game" of what the bears warn about. Since the mid 1990's bears have been crying wolf and have lost their ass so far betting on their beliefs. Could you have withstood 15 years of losses waiting for the end of the world to come? No chance. Most would have gone broke or capitulated by now.
What I see now from the retail trading community is an underlying tone of chronic bearishness. Just look at the message boards and blogs. Sure, there's more bulls out there that in prior months and there's signs of froth out there as per my bearish IT outlook but there's still tons of bears out there and I find that so many traders and just waiting to profit from the next downleg in the bear market. This whole notion of "green shoots" is, I find, being scoffed at by most people. People are complaining that less bad isn't good enough and that the market rallying on this is bs. I ask these people this....do you expect us to go from depression to boom overnight? It only makes sense for things to go from terrible to less terrible to modest recovery and then boom.
But I ask myself, maybe the perma bears are right....maybe you can't look at this skepticism as a contrary indicator because it's just so obvious that this bounce in the economy is "bs" as they say it.... maybe this is just a stimulus induced sugar rush the economy is enjoying....I'm not dismissing that but I got to tell you, the underlying bearish/cautious sentiment I see out there puts the market in a position to rise longer term as people grow from skeptical to cautiously optimistic to optimistic and then euphoric. The late John Templeton said: "bull markets are born in pessimism, grow on skepticism, mature on optimism and die on euphoria"
And you know what? If I’m totally wrong about everything I said, I won’t give a rat’s ass. My ego will not be damaged in the least and hopefully I will be able to recognize it and adapt quickly. The sooner people learn to do this the better they will be at making money in the markets.
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