A Contrarian View

Tue Nov25 (NY) - by Anatoly Veltman - Chief Global Analyst - I must confess that I've been approaching the futures board from the Long side of late. I heed signs of climactic Bear sentiment: 1. Most stock indexes reached long-standing target of FLAT CORRECTION, having traded back from record -> 2002 lows. Most people, though, continued to use same approaches as they've employed at significantly higher price levels (at 100% higher levels, bluntly speaking). 2. Certain prices are prepostorous. Prompt gasoline traded below $1.00 down from $3.63 record July 11; four months move! Copper swung from $4.08 to $1.52! One must remember: as opposed to individual stocks, that have proven their theoretical potential of wiping out - this simply can't happen to raw materials. Swiss Franc depreciated whopping 25% in same period - which is way too much; but raw materials by 62% !?? 3. Despite 30-90 day T-bill rates at literal zero, people appear to have bought into the idea that yields may go negative. I took Central Banking from Lourie Tarshis (who studied under and later worked for Sir John Maynard Keynes himself). Lecturing in 15% prime rate environment, Lourie shared his experience of persistant negative T-bill auction yields that followed the 1929 crash. Sounded exotic, people hardly believed my story over the years; but here and now - suddenly everyone believes this possibility! My sense: given modern financial sophistication vs. early 30's - why would it come to that this time around? 4. Even if the economy and corporate margins stagnate forever - why wouldn't dollar-denominated nominal prices of everything, including listed stocks, rise? There is obvious $-debasing going on; purchasing power of paper currency units will hit the skids... 5. Then, there are shorter time-frame sentiment observations. E.g. Monday's Open Interest in E-mini futures decreased 1% on rally (definition of short-covering); but big S&P Open Interest rose 3% during same day's advance!! To me: institutional traders have started to accumulate Longs, while Small Traders are too busy just short-covering! 6. From its new decade's low, SP is beginning to rally through 38% retracements and aim at 50% ones. It's also beginning to only pull-back 38%. Of course, there will be more scares to come in many areas and shoes to drop - but I can hardly bring myself to approach the board from the Short side strategically . . . (to read the remainder of this article, please log in below.)