Raging Bulls

Barton Biggs believes the markets offer incredible value right now. He thinks the markets are trying to find a bottom between 850 and 800 (S&P500). This is a single day's move away from the Friday close of 877 given current market volatility. If he is right we should be piling our cash in now. Nouriel Roubini feels there is a clear possibility of a further 20% correction in the markets with 600 being a more realistic bottom. Furthermore Roubini thinks the possibility of a prolonged Japanese style stagnation when the real estate and equity bubble burst 15 years ago is a very real possibility in the US. Who is right? Well, I don't know about Roubini but Biggs is clearly talking his book. In a cautious world view you have take the side of the most neutral observer. And that currently is Roubini. 

At least both are offering a view on a market bottom. Remember the Dow has fallen 6000 points from its level a year ago and the S&P has fallen nearly 700 points. That is 40-45% decline already. Is another 20% possible? 

In my view, next year the market is going nowhere. For every $1 going into a promising recovery story another $1 will come from a potential  disaster. There will be recycling of cash from one stock to another. I have never seen or heard such gloom in the city. Everyone is talking of a paradigm shift in the world. And I am a big sceptic of paradigm shifts just as I was when all and sundry talked about the disappearance of the business cycle and an everlasting Goldilocks economy. The reality we eventually find is always more mundane.

Yes there will opportunisits like Sarkozy who will use this as a moment to gather support for a previously dying Francophile model of controlled capitalism. The Spanish after the collapse of building sector, in which it seems every Spaniard is employed, will belatedly thank the great unwind for the opportunity to return to long siestas. Even the Americans under Obama (10 days to go) will move towards a gentler form of capitalism. Who will oppose them? The rising powers of China and Russia? I don't think so.

The anti-bubble crowd will take control perhaps for the next decade and the bulls will fume and rage. But ultimately they will return in the echo of the 80s god Gordon Gecko's immortal words, "greed is good". Well greed may not be good right now, but it cannot be eradicated. You cannot legislate worldwide against it. And financial institutions and naked capitalism will emerge again because it is not an ideology that can be untaught. It is human nature. And you cannot legislate forever against human nature.