Why I Am a Bear

Quite often people write to me (or comment on this blog) asking why I am a bear.

Let me first state that I am quite aware of a couple of reasons why a person shouldn't be a bear:

(1) The whole world is against you. From the investment banks, to CNBC, to Jim Cramer, to the brokerage houses, everyone on the planet wants the market to go up forever. There is a huge, huge, huge vested interest in the markets going skyward for all eternity.

(2) No one gets rich being a bear. Fortunes like Warren Buffet's are made by investing in stocks that reap multi-thousand percent gains or more. There is no one on the Forbes 400 that got there by being a bear.

Having said that, allow me to explain myself and hopefully set this question to rest.


For the sake of organization, I will break my reasons into three sections: Personality, Rational, and Irrational. I feel a little awkward posting a blog entry like this, since it resembles more of a confidential therapy session than technical analysis, but I want to be very clear about why I am disposed the way I am to shorts and puts instead of longs and calls.

Personality

Impatience: I'm not the most patient soul in the world. And the fact is that markets fall much faster than they rise. For instance, on February 27th, the market plummeted over 500 points in just a few hours. It takes weeks to go up that much (usually). So I'm drawn to fast-moving markets.

Worrywart: I'm a worrier by nature. I wouldn't go so far as saying I'm a pessimist, but usually I tend to see the things that will go wrong faster than I will see the things that will go right. Hence - - bear-dom!

Unconventional: Somehow I'm wired to want to be different. I like to stand apart from the crowd. Per my introductory paragraph, being a bear is by its very nature weird and different. If you happened to be this way during the 1980s and 1990s, it's also terribly unprofitable! I guess I could file this under 'Irrational', but it's part of my personality, so I put it here instead.

Rational

The Macro Economy: There is simply too much evidence of a sea change afoot for me to ignore. When I was growing up in the 1970s, things were generally pretty bad for America. We were coming out of Vietnam. There was stagflation. Carter was president. Media images of long gas lines and unemployment lines were a daily fixture. And out of that malaise came a huge resurgence. America was essentially "basing" for a very long time and exploded into success, wealth, and power.

That doesn't last forever, folks. Once you're really, really fat and really, really rich, you get soft in the middle. There is way too much mega-wealth sloshing around for anyone to believe that the U.S. is a lean, hungry machine waiting for burst into newfound success. Everyone in the Forbes 400 is a billionaire now.

Don't get me wrong, I love America, and I remember well during the early 1980s the feeling of pride that America was on the move again. But things move in cycles, and a big down cycle is coming. The grotesque wealth among a powerful few is a harbinger of a change. The forthcoming IPO of Blackstone is just another sign of this.

Long-Term Charts: I'm a chartist. I believe in what charts can predict. And every long-term chart I see (and when I say long-term, I'm talking about over a century in some cases) absolutely screams "TOP!" to me. And if you study the charts well, it doesn't predict a few hundred points off the Dow. It predicts a cataclysm. I want to profit from it.

Social Observation: One of the few verbs I remember from four years of Latin in high school is 'speculare', from which we derive the term 'speculate.' This verb doesn't mean "to gamble" but instead means "to observe." I am a speculator, and as such I am an observer. I consider myself pretty tuned-in to the social mores and climate of the U.S. and, in particular, the Silicon Valley where I reside.

I can tell you everything I see is far more indicative of a late 1990s style arrogance and bravado than a mid-1970s humility from which great companies like Apple and FedEx were born. What kinds of companies are being born today? The United States is populated in large part by a young generation that has never experienced a bear market in their lives.

The Irrational

Revenge: In the interest of full disclosure, I will be the first to admit that a portion of my bearishness comes from a sense of feeling cheated out of the amazing gains of the 1990s. So I'm wanting my share of the pie, having missed out on the amazing bull market. This isn't logical, it isn't sensible, and it clouds my thinking. But I at least have the clarity to recognize it.

And there we have it. As the tired cliche goes, the good, the bad, and the ugly. Today's market had enough interesting things going on that I could have spoken about it instead, but I felt it was high time to tell my thousands of daily readers just how my head was screwed on, for better or for worse. Good luck to you.