My concern is that he is a fundamentalist analyst who has now turned extra bullish expecting the S&P to rise to 1500 while seeing fair value at 910. That means another market bear has turned very bullish. His article seemed to show a certain degree of frustration that he has missed out on much of the uplift in share prices. I think Richard Russell who was calling the end of the world last year has been bullish for some time.
Why have they turned bullish? It seems to be related to QE2 and the presidential cycle (historically year 3 is very good for the market).
If there are no bears left then perhaps the market is closer to peaking then I would like it to be. So some extra caution is warranted. The market could turn nasty as it becomes worried about whether Bernanke can get QE3, QE4 etc agreed in the now more conservative government environment and change of Fed Board members. Also, I do not like what could come out of China - more interest rate hikes, some reduction in bank funding liquidity, a cooling off of the construction sector - their market has been lousy for a long time now showing there is something wrong. Europe is far from fixed and trade issues abound worldwide. US and European banks are still stuffed with hidden bad loans, and government deficits and debt are a major problem in US, Europe and Japan. The need for the consumer to deleverage still exists in most western countries, including Australia.
Commodity inflation can quickly turn into commodity deflation (at least in the hard commodities and precious metals sectors) if the economies stumble, eg as in 2008.
So as long as investors buy in the expectations that there is a greater fool to take their load, there is a good chance of another major market fall if the market retraces back to its former glory too fast. The flash crash last year was interesting, and a good indication of how quickly things can change for the worse. Maybe Prechter will finally get his wish for an even greater market decline than in 2008/09.
Marc Faber says the govts will print and print and he expects inflation to be created to eradicate govt debts. Not sure how that will take place or if it will happen. The alternative is formal default of debt, but that would actually destroy the banking system (who seem to own so many politicians), and would lead in the short-medium term to a depression as the credit creation system is destroyed, asset values plunge, bank shares lose their value and banks default their obligations. I am betting that Marc Faber's scenario will prove to be right.
I am not getting out of the market at this point (being mostly in goldies) but it is worthwhile to have a survival strategy in place.
(20min delay)