Elimination of the Bears

25 January 2021 By PDSNET

As far back as January 2016, billionaire George Soros went short on the S&P500 index. This means that he thought the S&P500 was going to fall heavily and he took positions which would profit from a major fall in that index. Later in May 2017 he doubled up on those “short” positions and he has been taking more short positions ever since. As recently as final quarter of 2020 he bought 17,000 “puts” on the SPDR S&P500 ETF (SPY) – which is an exchange traded fund specialising in matching the S&P500. Consider the chart of the S&P over the past 5 years:

S&P500 Index: November 2015-January 2021. Chart by ShareFriend Pro.

 

Since Soros took his first short position at the start of 2016, The S&P500 has doubled from 1925 to over 3850 – which means that Mr Soros and anyone who followed his advice has lost a great deal of money – with the inevitable result that his credibility as a market expert has been very badly damaged. Investors no longer believe that his advice is infallible. He was, perhaps, one of the first famous “bears” to be “eliminated” in this great bull market.

As we suggested in a recent article, The Coming Blow-off, exceptional bull markets, like the one we are in, eventually end with a blow-off of some kind. As a private investor, your problem is to know exactly where you are in that bull market and how close you are to the top. One of the better indicators of the progress of a great bull market is what we describe as the “elimination of the bears”.

A bear is a person who believes that the market is about to fall. Right now, there are plenty of bears proclaiming loudly in all the media that Wall Street is about to collapse into some sort of major downward trend. A cursory look of the current news on Wall Street revealed the following:

  1. Harry Dent. Dent is the founder of HS Dent Investment Management and the author of 11 books on investment. His latest prediction is that the S&P500 will fall by at least 40% by the end of April 2020.
  2. David Stockman. Stockman is a politician who served in the US House of Representatives under Reagan. He is a stockmarket newsletter writer and has been involved in asset management most of his career. He is currently saying that the stockmarket is “massively overvalued with the mother of all bubbles waiting to collapse”.
  3. Jim Rogers. Rogers is one of the founders of the “Quantum Fund” and has written a number of books. He is talking about the “coming economic meltdown” which he predicts will begin this year.
  4. Jim Rickards. Rickards is an American lawyer and economist who has worked extensively in fund management. His latest book is “The New Great Depression: Winners and Losers in a Post-Pandemic World”. The title clearly shows what he is thinking.
  5. Peter Schiff. Is a stockbroker and financial commentator. He says that there are three bubbles in the US which are about to burst – the bond market, the stock market and the US dollar.

What do all these people have in common? They are all relatively well-known in the investment community and they are all staking their reputations on a prediction that the market is about to collapse. Their followers are being urged to sell out of their share portfolios now. As the market goes inexorably higher, those people who followed their advice will lose money and they will stop following the “expert”. One by one these investment “gurus” will be relegated to the scrap heap.

Eventually, in a great bull market, a point is reached where nobody is willing to publicly proclaim that the market is at its peak – even if that is their belief. Investment experts generally will cease to take strong public bearish positions. Too many of their competitors will, by then, have been destroyed by taking a public stand. That is what happened in the great bull market which ended in 1929. Eventually, the so-called experts were saying that modern economics had effectively eliminated recessions and that the bull market would go on forever. They could not have been more wrong.

But as you watch this market go higher and higher you should try to keep an eye on how many bears there still are. You will see their numbers thin out as we get closer to the top. While there are still plenty of bears around, the high probability is that the bull market still has got some distance to run. Once the bears disappear you should know that you are very close to the top.


DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.



Share this article:

PDSNET ARTICLES

Distell

Quality of management is a vital indicator for the private investor. High quality management is the best guarantee of future profits and sustainability in any share, especially in the volatile and unpredictable environment of South Africa. COVID-19 and the recent civil unrest have given investors a unique opportunity to evaluate the quality of management

Opportunity Knocks

As a private investor, you need to develop a view on where exactly you think the market is in its cycle – is it expensive and close to the top, cheap and close to the bottom or somewhere in the middle? There can be very little doubt that investors generally move from being optimistic about the future to being pessimistic - and back again

Capitalising on Chaos

The most dangerous man is the one who has nothing to lose. He is not afraid of imprisonment because at least there he will have a roof over his head, food and clothing. For the past 12 years South Africa has been bringing much of its population to that point of desperation. Unemployment, the lack of service delivery and extreme poverty have become endemic.

At

Our Aveng Story

On 22nd October 2018 we ran an article entitled “Speculating on Aveng”, ( click here to read it ), in which we suggested that buying R10 000 worth of Aveng at 5c a share might be a worthwhile speculation for private investors. As we said in the article, we do not usually advise

The Confidential Report - July 2021

America

The US inflation rate rose to 5% in May 2021 – up from April’s 4,2% and March’s 2,6%. At the same time, there is evidence that employee costs (i.e. wages) are rising at the rate of 2,8% on average. Employees are also changing jobs more rapidly with the “quit rate” rising to 2,7%. This shows that employees are moving

More Fundamentals

In last week’s article we suggested that it was important to understand where a company was in its financial cycle and to download its most recent financial results in PDF format. Since then, one of South Africa’s best and most iconic companies, Hudaco, has published its interim financial results for the six months to 31st May 2021 (

Fundamental Context

The assessment of shares is divided into fundamental analysis and technical analysis. The fundamentalist is trying to answer this question, “How good will this company be as a payer of dividends in the future ?” This requires an in-depth study of everything about the company starting with its most recent financials.

Market Action

In general, we encourage investors to take a medium to long-term view of the market and not to get involved in “trading” or intra-day buying and selling, especially in highly geared derivative instruments.

However, watching the intra-day progress of the S&P500 index and other indicators

Market Update

The S&P500 has virtually completed its seventh “mini-correction” on Friday the 4th of June 2021, since the V-bottom of the pandemic in March 2020. It exceeded its previous all-time high closing level of 4232.6, reaching an intra-day high of 4233.45. That it would probably go to a new record high was indicated by its record intra-day high

The Confidential Report - June 2021

America

In the previous Confidential Report on 5th May 2021, when the S&P500 index was at 4167, we suggested that it was probably due for a correction. Over the last month we have watched as a correction unfolded in that index. However, it turned out to be only a mini-correction of just 4% - and as we pointed out in our article,