Famous Bear Turns Bullish, Say Recovery To Be 'Barn Burner'
When a voice of gloom and doom turns positively peppy, should you be bullish or suspicious?
“I am (for once)—bullish,” writes, James Grant one of the most celebrated bears on the Street in today’s Wall Street Journal.
This is the same James Grant who’s the editor of Grant’s Interest Rate Observer. The same James Grant who’s been predicting financial disaster since the early part of the decade, pointing to over-valued stocks, too much debt and mortgage-backed securities too complex for even the sharpest minds to fully understand.
What on earth would he change his opinion so dramatically?
It’s quite simple. He says you can’t fight history. “The deeper the slump the zippier the recovery,” he writes.
”Growth snapped back following the depressions of 1893-94, 1907-08, 1920-21 and 1929-33. If ugly downturns made for torpid recoveries, as today's economists suggest, the economic history of this country would have to be rewritten.
In other words things are about to get good because they were so bad. And he’s done the research to back up that thesis.
”I’m bullish on the prospects for unscripted strength in business activity,” Grant writes. And so, too, is the Economic Cycle Research Institute, New York.
He points to depleted inventories, rock bottom interest rates and the newly confident credit markets as major catalysts that have already sent markets soaring.
“By rallying, stocks and corporate bonds not only anticipate recovery but they also help to bring it to fruition,” Grant says. As a kind of “stimulus program.”
And Grant isn’t the only one saying this.
”The Economic Cycle Research Institute's index of the U.S. economy (is) making 26-year highs and points to the strongest bounce-back since 1983.”
Fast Money friend Mike Darda of MKM Partners appears to be onboard too. “The most important determinant of the strength of an economic recovery is the depth of the downturn that preceded it,” says Darda.
Over the past century there have been no exceptions to this rule.
What’s the trade?
Grant is really a thoughtful student of the market, explains Karen Finerman. For him to turn bullish really makes me take pause. I actually took back a little bit of protection because of his editorial.
If one buys into what he’s saying I’d suggest buying heavy cyclicals such as Eastman Chemical or any of the chemical companies for that matter. I’d also look at dry bulk companies and Ford, she says.
Do you buy into what Grant is saying? We want to know!
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Trader disclosure: On Sept. 21st, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour Owns (AA), (AAPL), (BAC), (EEM), (FITB), (INTC), (RIMM), (RIG), (SBUX); Seymour's Firm is Short (PBR); Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Finerman Owns (RIG); Finerman's Firm Owns (BAC) Preferred Shares, Finerman Owns (BAC) Preferred Shares And Owns (BAC); Finerman's Firm Owns (WFC) Preferred Shares And Is Short (WFC); Finerman Owns (WFC) Preferred Shares; Finerman's Firm Owns (MSFT), (NOK), (PBR), (WMT), (RIG), (TGT), (PLCE), (HPQ); Finerman's Firm Is Short (IJR), (MDY), (SPY), (IWM), (USO); Terranova Owns (FCX) Puts; Terranova Owns (CAT) Puts; Terranova Is Short (WFC); Terranova Is Short (AA); Terranova Is Short (WYNN); Terranova Is Short (JWN)
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