Bulls vs. Bears

There is extensive debate going on all over the globe, “Are we entering into Bear market?” Lot of things are happening worldwide. We saw global markets in long appreciation mode. We saw emerging markets (EM) appreciating by circa 300% in last 5-6 years. We saw abundant flow of liquidity in the market as interest rates worldwide were carrier low. We saw commodities like metals appreciate by more than 100%. Real estate prices appreciated by about 100%, on average. These symptoms indicate to a BULL market – one of the strongest is past few decades.

Now the things are changing. Interest rates are going up worldwide, led by US Federal Bank. There has been fall in developed markets like ‘DOW Jones’ & ‘NASDAQ’ (USA), FTSE (UK), DAXX (Germany), CAC (France). Followed by about 25% fall in emerging markets (EM). Commodities, especially metals prices have fallen by about 10%. There has been huge fall in US real estate prices; it is expected to be followed by emerging markets. These are inevitable events in this phase of globalisation as emerging markets follow the developed ones. Now back to the main question, “Are we in BEAR market?”

Let’s first see the real meanings of the words BULL & BEAR. Bulls are ones who want the prices to go higher, so that they can sell whatever they had bought at considerably low prices, leaving them with chunk of profit. Whereas Bears are the ones who want the prices to come down, more so to a reasonable level where they won’t be expensive. Now are we in bear market? Not yet! The reason is that we still have not seen rationality in commodity and real estate prices. Common person still finds them expensive, where it started from being cheap. So prices are expected to come down. But not necessarily this is bear market.

Bears like to keep the prices reasonable. What we are seeing in market is huge fluctuation from cheap to expensive and back. This clearly indicates to lack of bears in the market. To explain the current phenomenon, it has to be a correction – a severe one – mainly because we are still floundering for right prices as share markets seem cheap at current level and commodities and real estate still seem expensive. So we can say with lot of conviction that we are still in the Bull market. But there is risk in being in bull market as these fluctuations will persist and it is really hard to determine value of a buy. Another risk is that if we do not see regular short corrections in Bull market for a long time, there will only be one correction and a huge one – just like one we are in, right now. It’s events like these that prove requirement of Bears in market. Without them we’ll never know the value of the things we buy and sell.

So sure way to success is to support Bulls but respect Bears and not ostracise them.