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A good bear is hard to find

Bloomberg reports that the latest Fed rate cuts have induced widespread feelings of bullishness among investors.

Now that the mood of the marketplace has turned positive once again, it seems that bears are thin on the ground these days. Bloomberg notes that Wall Street strategists are the most bullish they've been since 2000. Investors are said to be "celebrating".

Excerpt from, "Suddenly a Good Bear is Hard to Find..."

Investors have been celebrating since the Fed's surprise half-point rate cut Sept. 18 sent the Morgan Stanley Capital International World Index of 23 developed markets on its biggest two-day rally since June 2006. They snapped up shares of commodity producers and industrial companies -- which became cheap last month after global stock prices fell to the least expensive in 12 years and will benefit the most when the economy grows.

So things are humming along nicely, and there are bargains to be had in the stock market.

But wait, they did manage to find two rather bearish fund managers who can offer up an opinion for this story...

The bears haven't all retreated. Balestra Capital Ltd.'s Jim Melcher and the Leuthold Group say the bulls are ignoring the reason for the central bank's rate cut -- concern that the world's largest economy is heading into a tailspin.

Policy makers ``realize that there's a real economic threat of recession if we're not already in one and there's a brewing financial crisis,'' said Melcher, whose $260 million Balestra Capital Partners LP hedge fund in New York has returned 124 percent this year with bets against financial shares and bonds backed by subprime mortgages.

The rebound in prices ``should be viewed as the eye of the hurricane,'' Steven Leuthold, whose $1.72 billion Leuthold Core Investment Fund has beaten 97 percent of like funds this year, wrote in the September issue of the firm's monthly research report. The Minneapolis-based Leuthold Group is concerned the economy will contract next year and cut its equity allocation to 30 percent from 50 percent on July 17, two days before the Standard & Poor's 500 Index reached a record.

I don't know which way the economy's going, but maybe if I act like I do you'll invite me on your tv program and I can spout out some numbers and statistics while looking very confident about it all.

Seriously though, you have to laugh at all this false precision and the sheer ridiculousness of all this forecasting. Does anyone really believe that the future direction of the stock market or the economy can be predicted by Wall Street strategists or IMF/World Bank statistics ?

Yes, I guess there are many who do believe it or at least play along for reasons of their own. Otherwise, this would have stopped a long time ago.

In the end, none of this really matters to professional investment managers as much as their directive: "here, take this money and buy some stocks with it!". I cite the following example:

James Swanson of MFS is also looking to purchase shares of the largest technology companies, along with regional banks. He says now is a time to buy equities even though cheaper credit may exacerbate the risk of higher inflation in three to four years.

``I am concerned about it, but what the heck,'' Swanson, who helps oversee about $200 billion as chief investment strategist at Boston-based MFS, said from Truro, Massachusetts. ``It's four years down the road.''

I think that about sums it up.

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