The Bouncing Ball Set to Crush James Grant ~ The Risk Averse Alert

Wednesday, December 30, 2009

The Bouncing Ball Set to Crush James Grant

Check out this article revealing, "That longtime 'perma-bear' Jim Grant had turned bull late this summer was one of the year's big surprises" ... saying, "He wasn't early to the rally by any means, but his public conversion didn't 'ring the bell at the top' as some had assumed."

This plays right into my view supposing that, sometime over the next couple years major stock indexes could collapse back to levels last seen in the 1987-1994 period, minimally. Indeed, once this collapse in fact happens (as I remain convinced it most probably will), then for all practical intents and purposes Mr. Grant as "perma-bear" will in fact have rung the bell signaling "top." You need but consider his recent crossover into the bull camp from perspective covering that longer-term period (around 30 years!) during which Grant had been decidedly bearish.


It is Grant's belief that "the economy is basically a bouncing ball, which flies off the cement at roughly the same velocity it hit." So, seeing as we are a finance-dominated "economy," a reasonable facsimile of this "bouncing ball" might be presented via the S&P 500.

Now, truth of the matter is there presently are a wealth of reasons to suppose this bouncing ball is traveling on a descending path. Indeed, all one need consider is the fact that, during the October 2007 - March 2009 decline internal technical conditions markedly worsened relative to the previous S&P 500 decline covering roughly the same distance from 2000 - 2002.

Thus, absent any evidence suggesting longer-term technical conditions are improving — quite the contrary! — the case supporting distribution from strong hands to weak occurring over the duration of the market's counter-trend rally off March '09 bottom is made. Any "perma-bear" turning bullish at this time is but icing on the cake.

So, with this in mind consider the present position of the bouncing ball's trajectory as being similar to where things stood in May 2008 ... with gravity formed by profound financial system vulnerability presenting that natural force threatening to throttle the stock market much, much lower.

"Stocks have reached what looks like a permanently high plateau."
Irving Fisher, Professor of Economics, Yale University, 1929.

"Cause for optimism is an observation about human nature, summed up by an epigram ... borrowed from the late British economist Arthur C. Pigou:
'The error of optimism dies in the crisis, but in dying it gives birth to an error of pessimism. This new error is born not an infant, but a giant.'”
James Grant, Economist, December 2009

You might be wondering, what makes Grant's remark no different than Fisher's?

Well, James Grant (of all people!) presently is optimistic. So evidently, the crisis has yet to have its killing effect. You see this everywhere, too...

Fast Money
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