Peter Brimelow: Rate cut makes bear Murphy feel more golden than ever

By Peter Brimelow
MarketWatch.com
Thursday, September 20, 2007

http://www.marketwatch.com/news/story/bear-feels-more-golden-ever/story....

NEW YORK -- Fed frenzy? As stocks surge for the second day after the rate cut, bulls feel vindicated but so does at least one bear.

First a proprietary word: The latest reading of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average recommended stock market exposure among a subset of short-term market timing newsletters tracked by the Hulbert Financial Digest, showed a jump to plus 30.3% Wednesday night.

As of the previous evening, the HSNSI stood at just 17.4%, which Mark Hulbert pronounced as bullish from a contrary-opinion point of view.

The HNSI is still well below the 50.9% level it reached when making its assault on 14,000 in July. But it's getting closer.

When I last looked at Don Hays of the respected institutional service Hats Advisory, he was loudly calling for a rate cut. He got it and is euphoric. He wrote Wednesday: "Thank you, Ben. I have great expectations we are entering that great post-Greenspan era, where we don't drive monetary policy by a failed economic forecast. The market LOVED yesterday's surprise (?), and according to our statistical wizard friend Jason Goepfert of www.sentimentrader.com, we experienced a cheer that very appropriately hasn't happened since Aug. 20, 1982."

Ah yes, 1982. Remember? Well, let Hays fill you in: "Oh what a day, a day when everyone stood up and welcomed the massive new bull market that would eventually propel the Dow Jones Industrial Average from the 838 to 14,000, and Ladies and Gentlemen, it is still ticking. Yesterday (Tuesday) the upside to downside volume on the NYSE was an astounding 30-to-1. This is a mighty trumpet blast, heralding the unveiling of the "Build-out phase" of the Technology Revolution. This is the final emerging from the gloom and doom of the last three years."

Richard Russell of Dow Theory Letters obviously feels his long-awaited buy signal is now safe from being whipsawed. But he continues rather grudgingly: "You don't have to be a genius to participate in this market. My suggestion includes three items: Dow Diamonds ETF, which is a proxy for the Dow, streetTRACKS Gold Shares ETF, which is gold, and some cash. How much cash is your call. Of course, the way the dollar is going, you might turn it around and worry about how many dollars you should hold. But holding dollars right now doesn't bother me; it's holding dollars over the years that is the danger."

Ironically, that's pretty much what bearish Bill Murphy of LeMetropole Cafe thinks too. Murphy and his writers think financial markets are being manipulated to create an inflationary boom, which will eventually end in tears. He notes that gold's 28-year high is as-yet unaccompanied by investor enthusiasm. Quoting Mark Hulbert, he thinks this is bullish contrary-opinionwise.

Murphy wrote Wednesday night: "One thing for sure, the U.S. can't lower interest rates to the degree they did, as oil rages to one all-time high after another, without consequences. A significant consequence (obviously) is higher inflation, much higher inflation than is considered tolerable. A tanking dollar will fuel that inflation even more.

"At some point long-term interest rates are going to take off. The temporary relief for U.S. financial markets will then turn into exasperation again. Our stock and real estate markets will feel that stress and move accordingly ... down. Meanwhile, gold will be the place to be."

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