Peter Brimelow: Veterans aren't panicking over Dow's plunge

By Peter Brimelow
MarketWatch.com
Thursday, November 8, 2007

http://www.marketwatch.com/news/story/veterans-arent-panicking-over-dows...

NEW YORK -- Phooey! Wednesday's 360-point Dow drop was only the fifth-worst of day of 2007, and the index still up for the year. Why worry?

First a proprietary word. The latest readings of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average recommended equity exposure among a subset of these timers, stood at just 8.5% at Wednesday's close, down from 14.9% on Tuesday. Mark Hulbert regards this rapid retreat as bullish from a contrary opinion viewpoint.

Superbull Don R. Hays publishes the respected institutional service Hays Advisory. He wrote on Wednesday morning: "Everybody I talk to asks me about the terrible stock market. I'm amazed, but I understand their "misguided" understanding and beliefs about stock market conditions. This is a deeply segmented stock market. It is volatile and the huge 1-day dips get all the attention. But I believe that if you are a growth stock investor you are experiencing a nerve-wracking but very good year. ... Our asset allocation model continues to recommend being fully invested in equities, and we are currently putting that 8% of cash we pruned a few weeks ago back into some new stock positions."

To repeat, that was before Wednesday's woes. But Hays did have complaints: "I know you are tired of us continuing our tirade about the stupidity of the Federal Reserve's stubbornness to cut rates more and faster. But we believe there is NO BETTER forecaster of inflation expectations than the bond market. The Fed's target fed funds rate is 4.5%, but the market refuses to buy that, driving the rate today down to 3.5%."

Still, Hays admits, given that he thinks the bond market is signaling disinflation, he is puzzled at the strength of oil and gold.

Bill Murphy of LeMetropole Cafe appears not puzzled at all. He is a leader of a radical faction of gold bugs who believe the yellow metal has been covertly manipulated by the authorities and private sector chosen instruments (the "Gold Cartel") to create an inflationary boom, and that the game is now up.

Murphy gloated Wednesday night: "No 'hail Mary' play today. There was just too much horrendous news surfacing to keep the sellers from dumping stocks, and then dumping them late. The PPT [Plunge Protection Team, Murphy's name for the rumored quasi-official body he thinks smoothes financial markets] chose to not step in front of a freight train. ...

"As said in this column for some time now, the problems facing the U.S. economy and financial markets are staggering ... too big to be fixed now without some serious financial pain and correction of imbalances. You can thank the Counterparty Risk Management Group, Exchange Stabilization Fund, and the Gold Cartel for allowing this situation to develop.

"And throw in the phony-baloney financial market press. They are bought and paid for by the money and power in this country ... which is why [the gold manipulation theory] is STILL not allowed to be seen, heard, or discussed. ..."

Ahem! We've discussed it. (See my Sept. 10 column.)

One worrying sign: Richard Russell of Dow Theory Letters is a belated born-again bull on the stock market. But now he seems really jittery. He wrote Wednesday night: "Transports broke below their Aug. 16 support today but Industrials closed 455 points above their own Aug. 16 critical low of 12,845.78. If Industrials close below that figure, the great primary trend of the market will have turned down, and according to the Dow Theory we'll be in a primary bear market."

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