10 Reasons To Look On The Bright Side

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Aug. 29, 2011, 4:20 p.m. EDT

By Brett Arends, MarketWatch

BOSTON (MarketWatch) "â? Maybe everything is about to fall apart. Maybe the Dow Jones Industrial Average /quotes/zigman/627449/delayed DJIA +2.26%  is heading back to 6,000. Maybe those of us who survived Hurricane Irene "â? which brought a devastating, er, breeze and light drizzle to central Boston "â? should be piling up the sandbags and setting up the shutters for the real hurricane about to come out of our financial system.

After all, all the problems remain. Europe is bust and so are we, economically and politically. The system is a house of cards. Equities remain expensive by some measures. We may well be heading into another recession "� assuming, for the sake of argument, that we ever really left the last one.

In Washington and Brussels, political attempts to fix the various crises look about as ordered as this.

But everyone is already so bearish. And you get nowhere in this game agreeing with the consensus. So while my head is still deeply skeptical, my heart wants to see the silver linings to all these clouds.

1) It's the end of summer. Once upon a time, September and October used to be the cruelest months on Wall Street. Once everyone had worked that out, they simply moved their selling forward. Now you could argue the summer is the worst time. We saw hefty selloffs in 2007, 2009, and 2010 before autumn rallies. (The obvious outlier, of course, was 2008).

2) We've just had a big correction. In total the Dow Jones U.S. Total Stock Market /quotes/zigman/2623814 DWC +3.13%  fell about 20% from peak to trough "â? a hefty fall. Overseas markets have also tanked. A fall this sharp and widespread usually clears the air and produces some decent values.

3) We've formed a double bottom "â? actually a triple bottom. When the market tanked earlier this month, the Standard & Poor's 500 /quotes/zigman/3870025 SPX +2.83%  held at around 1120 on Aug. 8, and tested the level successfully on the 10th and the 22nd. Make of it what you will, but chartists would call that pretty bullish.

/quotes/zigman/3870025 SPX 1,210.08, +33.28, +2.83% Triple bottom for SPX

4) Mom and Pop are still bearish. It's a depressing reality that ordinary investors tend to sell stocks at the wrong time and buy at the wrong time. There's evidence for this going back decades. You could actually have made money over the long term by just buying when the public sold and selling when the public bought. And right now they are selling "� big time. The latest data from the Investment Company Institute, the mutual fund association, shows that ordinary investors withdrew a hefty $84 billion from U.S. equity mutual funds from the start of May through mid-August, and TrimTabs estimates they withdrew another $14 billion last week.

5) Insiders have been buying. According to a report by Bloomberg, a few weeks ago top executives were buying stock in their own companies this summer at the fastest rate since the March 2009 market bottom.

6) Companies are buying up stock. TrimTabs reports that companies bought nearly $100 billion of their own stock just in July and August. They can do so with borrowed money "� and thanks to the raging bullishness in the bond market, can pay next to nothing in interest on the money. This is a huge transfer of wealth from the bond market to the equity market "� and suggests one should be most wary of bonds, not equities.

7) People need to keep their money somewhere. And Ben Bernanke has just announced a war on cash, with interest rates guaranteed to stay on the floor for at least another two years. Meanwhile you can find armloads of blue-chip stocks with well-covered dividend yields above 3%.

8) Stocks only look really expensive when measured in depreciating dollars (or "American pesos,"? as a friend in the currency markets calls them). When measured in a hard currency like, say, Swiss francs /quotes/zigman/4868123/sampled USDCHF +0.3049% , the Standard & Poor's 500 is down two-thirds from its 2000 peak and is nearly back to 2009 lows. That makes blue-chip stocks, in particularly, look like an increasingly cheap claim on the growing revenues and earnings they earn from abroad "� and will doubtless also make them more attractive to rich overseas investors, like the Chinese.

9) Everyone is still really nervous. And that ought to be bullish. The Vix /quotes/zigman/2766221 VIX -9.30% , the so-called "fear gauge,"? is a lofty 32: TrimTabs notes it has closed above 30 for 21 days in a row. Investors continue to buy more "put"? options, to protect against a crash, than "calls,"? to bet on a rally.

10) Institutional investors have panicked. The latest Merrill Lynch/Bank of America survey of global money managers found their cash levels this month surged above 5%, the highest level since "? March 2009, and nearly as high as November 2008. Merrill calls this "capitulation"? and says it "triggers a buy signal for equities."?

/quotes/zigman/627449/delayed Add DJIA to portfolio DJIA Dow Jones Industrial Average 11,539.25 +254.71 +2.26% Volume: 177.54M Aug. 29, 2011 4:30p var embeddedchart70394702Chart = new EmbeddedChart('#embeddedchart70394702', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:DJIA'); jQuery.data($('#embeddedchart70394702').get(0), 'embeddedchart', embeddedchart70394702Chart); /quotes/zigman/2623814 Add DWC to portfolio DWC Dow Jones U.S. Total Stock Market Index (full-cap) 12,699.31 +385.55 +3.13% Volume: 1.17B Aug. 29, 2011 5:15p var embeddedchart278552388Chart = new EmbeddedChart('#embeddedchart278552388', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:DWC'); jQuery.data($('#embeddedchart278552388').get(0), 'embeddedchart', embeddedchart278552388Chart); /quotes/zigman/3870025 Add SPX to portfolio SPX S&P 500 Index 1,210.08 +33.28 +2.83% Volume: 0.00 Aug. 29, 2011 5:10p var embeddedchart124732823Chart = new EmbeddedChart('#embeddedchart124732823', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:SPX'); jQuery.data($('#embeddedchart124732823').get(0), 'embeddedchart', embeddedchart124732823Chart); /quotes/zigman/4868123/sampled Add USDCHF to portfolio USDCHF CHF/USD 0.8183 +0.0025 +0.3049% Volume: 0.0000 Aug. 30, 2011 3:51a var embeddedchart226275909Chart = new EmbeddedChart('#embeddedchart226275909', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:USDCHF'); jQuery.data($('#embeddedchart226275909').get(0), 'embeddedchart', embeddedchart226275909Chart); /quotes/zigman/2766221 Add VIX to portfolio VIX CBOE Volatility Index 32.28 -3.31 -9.30% Volume: 0.00 Aug. 29, 2011 3:14p var embeddedchart1085120985Chart = new EmbeddedChart('#embeddedchart1085120985', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:VIX'); jQuery.data($('#embeddedchart1085120985').get(0), 'embeddedchart', embeddedchart1085120985Chart); //$(document).ready(function() { var storywidth = $('#mainstory').width(); var maxwidth = storywidth; $('#maincontent pre').each(function (index, value) { var thiswidth = $(value).width(); if (thiswidth > maxwidth) maxwidth = thiswidth; }); var offset = maxwidth - storywidth; if (offset > 0) { var margin = 13; var blanketwidth = $('#blanket').width(); var contentwidth = $('#maincontent').width(); $('#blanket').width(blanketwidth + offset + margin); $('#maincontent').width(contentwidth + offset + margin); $('#mainstory').width(storywidth + offset + margin); } //});

Brett Arends is a senior columnist for MarketWatch and a personal-finance columnist for the Wall Street Journal.

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Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S... Expand

Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money,"? has just been published by John Wiley & Co. Collapse

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4) Mom and Pop are still bearish. It's a depressing reality that ordinary investors tend to sell stocks at the wrong time and buy at the wrong time. There's evidence for this going back decades. You could actually have made money over the long term by just buying when the public sold and selling when the public bought. And right now they are selling "� big time. The latest data from the Investment Company Institute, the mutual fund association, shows that ordinary investors withdrew a hefty $84 billion from U.S. equity mutual funds from the start of May through mid-August, and TrimTabs estimates they withdrew another $14 billion last week.

5) Insiders have been buying. According to a report by Bloomberg, a few weeks ago top executives were buying stock in their own companies this summer at the fastest rate since the March 2009 market bottom.

6) Companies are buying up stock. TrimTabs reports that companies bought nearly $100 billion of their own stock just in July and August. They can do so with borrowed money "� and thanks to the raging bullishness in the bond market, can pay next to nothing in interest on the money. This is a huge transfer of wealth from the bond market to the equity market "� and suggests one should be most wary of bonds, not equities.

7) People need to keep their money somewhere. And Ben Bernanke has just announced a war on cash, with interest rates guaranteed to stay on the floor for at least another two years. Meanwhile you can find armloads of blue-chip stocks with well-covered dividend yields above 3%.

8) Stocks only look really expensive when measured in depreciating dollars (or "American pesos,"? as a friend in the currency markets calls them). When measured in a hard currency like, say, Swiss francs /quotes/zigman/4868123/sampled USDCHF +0.3049% , the Standard & Poor's 500 is down two-thirds from its 2000 peak and is nearly back to 2009 lows. That makes blue-chip stocks, in particularly, look like an increasingly cheap claim on the growing revenues and earnings they earn from abroad "� and will doubtless also make them more attractive to rich overseas investors, like the Chinese.

9) Everyone is still really nervous. And that ought to be bullish. The Vix /quotes/zigman/2766221 VIX -9.30% , the so-called "fear gauge,"? is a lofty 32: TrimTabs notes it has closed above 30 for 21 days in a row. Investors continue to buy more "put"? options, to protect against a crash, than "calls,"? to bet on a rally.

10) Institutional investors have panicked. The latest Merrill Lynch/Bank of America survey of global money managers found their cash levels this month surged above 5%, the highest level since "? March 2009, and nearly as high as November 2008. Merrill calls this "capitulation"? and says it "triggers a buy signal for equities."?

Brett Arends is a senior columnist for MarketWatch and a personal-finance columnist for the Wall Street Journal.

Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S... Expand

Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money,"? has just been published by John Wiley & Co. Collapse

Peter Brimelow

Wall Street Irregulars

Still sticking with stocks

Jennifer Waters

Consumer Confidential

Low rates good "� and bad "� for consumers

Chuck Jaffe

Mutual Funds

ETFs claim another fund industry victim

Craig Stephen

This Week in China

Beijing's policy and traffic logjam

David Marsh

Marsh on Monday

Why ECB must show collective leadership

Amy Hoak

Home Economics

Running your home on sunshine is cheaper

Myra Saefong

Commodities Corner

Gold gets a good dose of needed volatility

John Shinal

Tech Investor

Don't let emotions rule your Apple decision

Al Lewis

Al's Emporium

Why can't we tell Paulson is a hero?

Howard Gold

Read Full Article »