Why A New Bull Market Has Begun
FN Arena News - April 07 2008
By Rudi Filapek-Vandyck
He's usually not known for mincing his words, nor for fear of raising his head above the cornfield others know as the global financial sector, but when Dennis Gartman called for a decisive change in the outlook for global equities last week his call will have caught the attention of many.
Is this the same Dennis Gartman who produced one bearish note after another bearish comment since mid last year -at times in strong and defiant opposition to raging market bulls who believed that temporarily rising share prices was a vindication of their own views? It surely is the same one. And to spice it all up a bit more, he was happily pointing out the call came with strong conviction.
Many more market analysts and commentators have -mostly cautiously- expressed a view that the worst could now be over for global equity markets. Few, however, have dared to go as far as Dennis Gartman (at FNArena, we don't know anyone ourselves and we certainly haven't seen anyone anywhere thus far).
The man himself has tried to explain it in the last two editions of his daily newsletter, the Gartman Letter:
"We are asked, "If you are so bearish still of the economy, how can you be bullish of equities?" The answer is very simple: It is called a capital market for a reason. Capital, created by the central banks, floods into the system as the economy wanes, but not being needed as inventories are worn down, as employees are laid off, and as business conditions deteriorate, that capital finds its way into equities.
"Therefore, equities rise even in the midst of recession. It is for this reason that the stock market is one of the "leading economic indicators." Conversely, as business conditions heat up; as inventories are accumulated and as employees are added to payrolls, capital is demanded by the economy itself, and that capital flows from the equity market at the margin.
"Therefore, equities begin to weaken long before the economy makes its top and turns to recession. If one keeps this simple, but elegant, notion in mind, it makes the game of investing in the midst of recession a great deal easier."
Gartman happily concedes more difficult economic times lay ahead. The bottom line remains, however, that stocks are heading higher.
In addition to a switch in view on equities, he is currently "aggressively bullish" of the grains, of the precious metals, of the base metals and of natural gas "with a longer term perspective". With regards to gold he advises people to wait for the Euro to break through US$1.5850 before jumping in.