From Michael Santoli in the current Barron’s:

SO, THERE’S THIS GUY WHO E-MAILS ME his market outlook every so often. Actually, a lot of guys do this, and all of their offerings are happily accepted, if only for what they hint about prevailing investor attitudes.

But this particular guy is unique in at least two respects. He has no interest in having his name placed in print or pixels. And he is the one commentator I’m aware of who both turned aggressively bearish virtually at the all-time market peak in 2007, then in April began insisting that the March market lows would not be challenged, and that a new cyclical bull market had a long way to run.

I’m sure there were others who can claim a similar achievement. And there were plenty who were bearish for a good long while on the way up, then more optimistic at some stage of the market washout; maybe some even caught most of the rebound.

This guy, though, is the one whose dispatches I saw as the very uncertain market trajectory took shape, illuminating the real-time contrast between his high levels of conviction and clarity and the deep ambivalence and confusion enfolding most of us.

He doesn’t claim any magic formulas or proprietary systems. His approach is eclectic and inclusive, ranging among economic, technical, historical, valuation and sentiment inputs. He’s in the business, as a broker, and shares his missives with clients. And he still doesn’t want to be identified. But his current thinking isn’t less valuable for being presented without attribution.

To set the scene, dial back to Nov. 7, 2007, when he wrote “A Bear Is in Sight,” with the Standard & Poor’s 500 at 1520, after having retained a bullish stance since the prior bear-market lows of 2002-03.

His bottom line was this: “The coming bear market will be severe…The worst performing sectors will be where all the current excesses lie. Commodities, especially oil, alternative energy, financials, housing, commercial real estate and industrials will be absolutely devastated.

“The Fed will have to lower interest rates all the way to 0% and we will face similar problems as Japan faced in the 1990s. Long-term Treasury bonds will be the best investment during this extended bear market. The secular bull market in long-term Treasury bonds will not end until next decade with the 10-year Treasury bonds reaching 2% before they bottom.”

The 10-year bottomed in late ‘08 at 2.07%, but it’s hard to withhold much credit for that, given the string of bullseyes that preceded the prediction.

The severe decline, having morphed into a global financial panic, culminated in a shorter, more painful span than he or most any other analyst anticipated. Our guy figured the stock-market downside wouldn’t be done until 2010. But prices collapsed so rapidly that by April he made the call that the low was in, would not be re-tested and a new bull market was upon us.

His piece of April 28 — a 12-page, single-spaced argument ranging across market history and the minutiae of the tape, and called “Why This Rally Is Really Different” — arrived at a time when the overwhelming crowd opinion was that the 29% jump in the S&P since March, to 855, was just another fleeting bear-market bounce.

Keying off credit improvement, profoundly panicky investor sentiment, an incipient pickup in leading economic signals and much more, he wrote: “We are very unlikely to have a retest of our March 9 low. Don’t expect a big pullback until the S&P 500 reaches the 930-940 level within the next two months [remarkably spot on]…The S&P should reach 1300 by next March.”

In subsequent months, the author of this declaration of bullishness “traded” the short-term wiggles in the tape rather well, with pieces calling for a short-term correction Sept. 22 and another titled “Time to Buy Again” 10 days later and a few percent lower, followed by “Capitulation Day” advising buying Oct. 29, right at the low of the last sizable pullback.

With his latest effort, “Ready to Breakout,” from last Monday, he pushed back against some common critiques of the recent market repeatedly stalling just above 1100, where we now sit.

To the observation that riskier, smaller and financial stocks have underperformed since mid-October — presented as signs of a maturing rally — he notes that this occurred from early May to early July as well, before the former pattern of rising risk appetites resumed.

It’s become common to point to the extreme low 17% reading for admitted bears in the recent Investors Intelligence investment-adviser survey as a sign of too much optimism for stocks to continue higher. It can’t be dismissed as irrelevant. But the percentage of bulls was 48%, a not-very-alarming level, with an abundant 35% of folks expecting a correction — the most in many years — accounting for the balance.

He adds that in blast-off rallies from depressed levels such as this one and the one in 2003, the rally’s end is usually accompanied by much more overbought conditions and enthusiastic psychology than we now see. This was true for sure in late 2003, based on a sampling of sentiment measures laid out by Ned Davis Research last week.

Our guy writes that he’s “dumbfounded by the refusal of the media, investors and economists” to acknowledge the prospect of a V-shaped economic recovery given the pace of improvement in employment, industrial production and leading indicators.

He’s calling for the S&P to run to 1200 or to 1250 by mid-January, hitting a high some time in the first quarter, followed by a 10% correction into late summer or fall, but not one leading to a resumption of the post-2007 downtrend. This would echo, roughly, the 2004 market, in which the economy improved as the market had anticipated but most of the equity upside was inked in the prior year.

No one has a monopoly on predicting the future; no one even holds the franchise rights. And this particular streak of expert trend-riding could end any time. But if any forecasters are ever worth lending an ear, the ones who exhibit mental flexibility and analytical rigor are most worth it.

- Smarm

Related Posts:

• Sprott Says S&P 500 to Tumble Below its March Low
• Royal Bank Of Scotland: Massive Crash Coming with New Lows
• Credit is not flowing. In fact, credit is contracting.
• Fun and interesting: Prechter: It’s The End Of The World
• If our market goes as per Fundamentals, Dow will be close to 8000 or even less than that.

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