Friday, December 04, 2009

Hedge Funds Most Bullish Since Late 2007

"The more sophisticated investors are seeing the opportunity, but retail investors are still scarred," said James Dunigan, chief investment officer for the wealth management division at PNC Financial Services.

Hahaha. Wanna bet Mr. Dunigan was fully invested in stocks and commodities when markets collapsed in 2008? The stream of carnival barkers masquerading as clowns is endless. How sophisticated were most hedge funds in 2008? Some made a fortune on the collapse. Most were caught with their pants down. Sophisticated? Please. Sophisticated investors were short or in cash during the crash. Clowns are loading up on stocks today. The market's price to earnings ratio is 3x what is was in 2000. Without the biggest earnings recovery in the history of the world, this market is will eventually be in serious trouble. That is unless we've entered a brave new world where discounting fifty to one hundred years of earnings with little or no dividend is going to attract permanent capital. When the free money train runs out and the carnival barkers realize how much risk there truly is on planet earth, we'll see more messes. That is, if Wall Street's risky bets don't blow up first. Central bankers can't print their way out of the enormity of this crisis.

We have discussed the dynamic of money flows in numerous posts. People, businesses, banks and governments are unwinding and often selling investments, selling businesses, raising capital, etc, not because they are panicking or making a poor investment decision. They are or will be doing so because they need to raise capital. We have been writing of this dynamic for a long time. Long before the collapse. The dynamic hasn't passed. Not even close. That Mr. Dunigan doesn't understand this simple fact in his perspective of why money is flowing out of stocks shows he doesn't understand what is happening in the economy or how it will affect the financial markets.

Sophisticated investors most bullish since late 2007? You remember 2007? If not, here's a friendly reminder.

posted by TimingLogic at 11:44 AM