Are we in bizzaro year 2000?

I'm probably going to keep trading light in the next couple of weeks because I believe the markets are going to be rather choppy and erratic for a few weeks as I suggested yesterday. I believe this is good time to do research on your favorite stocks and sectors and make a buy list. In these times, I like to reflect upon the bigger picture. Going forward I'm likely going to be using more of a buy and hold type strategy.

Shanghai is going through a correction here due to fears of a deceleration in bank lending to rein in their overheated markets. This is having a spill over effect here. Drops triggered by such catalysts are not bull killers. You need to see massive and prolonged credit tightening to end a bull run and that will typically be signaled by an inverted yield curve. The yield curve is extremely steep all over the world.

There's no shortage of worries out there and like I mentioned that's a good thing. Worry is a bull market's fuel source and that's why they say "bull markets climb a wall of worry". When there's nothing to worry about that's when you should be worried. One of the big worries out there is the large budget deficit right now and as an investor you might think that it’s a bad time to invest in the US markets when this happens....well you would be badly mistaken. It turns out that the market performs well above average when there’s a significant increase in government spending and performs below average when there's a surplus. Why? Obviously there's the stimulative effective of such spending but I think it also has to do with the psychological state of the market. At times when there are massive increases in government spending the mood of consumers and investors are in a depressed state which means expectations and stock prices are low. Every time we find ourselves in depressed economic times and the governments start to use this Keynesian pump priming strategy the bears come out saying that this is going to come back to haunt us badly one day as we pile up debt. You hear this now quite loudly. But did you know bears have been saying this since the 1950s? Will there be an endgame to this? I believe yes, simply because of Murphy's law - anything that can go wrong eventually will. So long as there is a positive probablity of some event happening (such as a complete economic collapse) then one day it will happen. But is that time now or in the near future? I don't think so because the stock market and the bond markets aren't saying it is. The stock market is a barometer of prosperity/future prosperity. Yes, it can be subject to manias, panics and crashes but for the most part it is an effective barometer of economic health. I have also learned that time and time again it pays to go against consensus think ESPECIALLY when the market is telling a different story.

So what is the market saying right now? We've seen a 55% rally in about 5 months, we've seen credit spreads collapse to pre-crisis levels and we are seeing a very steep yield curve....the same yield curve by the way, which was became inverted in 2006 flashing the opposite message of an oncoming recession. So while you have this fantastic forward looking indicator screaming of better times ahead, you still see commercials on TV starting off with "in these tough economic times". Remember, when main street media mentions anything about the economy they are ALWAYS late to the party and won't change their tune until it's painfully obvious a turn around has occurred. To me it looks like we are in a situation where the music has stopped and yet people are still dancing...the same idea when the tech bubble burst in 2000 but in the opposite direction. It took about 6 months after the tech bubble burst for people to really begin to embrace even the possibility of a recession.

I believe we saw a negativity/short bubble burst in March. In many ways, what we are seeing this year is the complete opposite of what we saw in March 2000....bizzaro year 2000 if you will. Here's why...

In March 2000 the yield curve was inverted
In March 2009 the yield curve was steeply slopped (and still is)

In March 2000 the NASDAQ had a blow off top after a 3 month 30% rise
In March 2009 the Bank Index (XLF) had a blow off crash after a 3 month 50% drop

In March 2000 consumer sentiment was near all time highs
In March 2009 consumer sentiment was near all time lows

In March 2000 the most popular gurus were bulls such as Cramer, Cohen and Blodget
In March 2009 the most popular gurus were bears Roubini, Whitney and Schiff

In March 2000 the annualized 10 yr rate of return in the SPX was near a historic high of 16%
In March of 2009 the annualized 10 year rate of return in the SXP was near a historic low of -6%

By March 2000 IPOs (new stock supply) were being issued like crazy most of which were poor quality companies.
By March 2009 hardly any (if none at all) IP0s were issued

A common theme in 2000 was that we entered a "new era" of high prosperity for years to come due to the tech/internet revolution.
A common theme in 2009 is that we entered a "new normal" of below average growth for years to come due to ongoing deleveraging.

Do you see what I mean here??? Look, by no means do the above points guarantee it's going to be onwards and upwards from here but I hope I have shown a variant perspective about what could unfold here. I see so much group think from all the pundits and bloggers out there.
Quite frankly, I'm liking the bull case A LOT from a longer term perspective based upon these points because it just "feels" right based upon my experience. But don't get me wrong here folks...by no means am I married to this view. This may sound like a cop out and if that's the way you feel so be it...I will quickly throw this bullish thesis into the garbage if evidence suggests so and do a 180 and you can call me a flip-flopper or whatever. That's fine.

This is not about pride or ego or wanting to be proven right so that your friends think you are such a smart guy after you gave them your opinion on the economy. This is about making money and to do that you need to be brutally objective in a robot-like way. This is very, very hard to do and not only that, you can still get it wrong even if you are purely objective either because you don't do enough research or just plain bad luck. If for instance a nuclear bomb wiped out half the earth tomorrow then no bullish indicator in the world is going to matter.

Anyhow, sorry for the long rant.