A true bear market feels different

The market as measured by the SPX is off about 10% from its peak but based upon all the hoopla in the media and the pundits, you get the sense that we've crashed more than 30%.  I've seen plenty of bear markets in my time and I can tell you that what I'm seeing here at least from a sentiment perspective, doesn't fit the bill as classic bear market action aside from a "mini-bear" like what we saw in 2011.  Do you remember what the sentiment was for gold and oil near their peaks and after they rolled over into true bear markets? I do. When gold was at $1800, it was simply a matter of when not if  gold was going to hit $2500. I clearly remember many pundits saying "gold is good to own during inflationary and deflationary periods" in other words, you couldn't go wrong owning gold! I pointed this out out at the time how this was complete nonsense and it's these types of rationalizations  that you tend to see near the peak of a sector. The same thing applied to oil. The financial/business section of Chapters was littered with "peak oil" and energy crisis related themes which predicted $200 oil. I also mentioned in December how there were pizza delivery boys earning $56k/yr + benefits in one of the hot spots of the US shale boom. Well folks, that's the type of exuberance and excess you see when a sector is in danger of topping out. Of course, trying to time the exact top is very difficult as the top can still be a year or 2 away when you see such signs of giddiness. When those hot sectors did roll over, how many pundits did you see on TV call it? How many articles in the financial papers warned you about huge damage to come? I bet it was close to or at 0.

Now ask yourself these questions. Did you see the average investor/pundit become giddy with the stock markets in general just prior to this peak? I'm taking about "you can't go wrong" type giddiness. The answer to that is no in my opinion. This has been the most unloved bull market ever and I don't think it was ever fully embraced. Now that the markets have dropped 10%, is there complacency or worry? I'd have to say there's definitely worry. There's no shortage of doom and gloom articles in the financial media warning about the fallout from China or the looming rise in interest rates in the US, or the fallout from interest rates not rising! I noticed Cramer using the term "bear market"when describing the action. When I was working at TD talking to retail clients on a daily basis they were often citing things like China or the Greece as causes for concern and so I know that I'm right when I say that the financial media is quick to point out issues/problems with the markets anytime they have a sizable decline. 

To play the devil's advocate there were some signs of excess in the market building up, namely, margin debt levels and lower quality of IPOs hitting the market. I would argue though that these are more so the symptoms of a maturing bull market and we didn't see things get truly giddy. We saw market debt starting to build up rapidly just prior to the 20% drop in 2011 and just like this time around, the froth get washed away rather quickly which is healthy for the market. Margin debt has been declining notably and the IPO market has been practically shut down. The one thing we're still missing though is more equity fund outflows. I'd like to see more panic in the market by retail investors and I myself don't feel as nervous as I think I should be. I know that in the depths of 2011 I had more doubts about the market although I gave the benefit of the doubt for a bullish resolution. You know you're near the end of a correction when even the bulls like me start having second thoughts! 

What catalyst could ultimately get us out of this funk? I think what we will see is a very big push from China's authorities to support/stimulate their economy beyond what we've seen so far. If there's one thing the authorities have learned since 2008 is to not stand idle. Like it or not, that's the way it's going to be so embrace it rather than dogmatic, ideological beliefs you have about how the markets and the economy should function like Hussman and the other self important permabears. Save that bs for friends and family over coffee or something.