Recently in December I discussed that despite remaining a reluctant bull on the stock market, there are real reasons to fear a 1987 type scenario of a market crash. This is why I have recommended retail investors hold a significant cash position for over a year now despite stocks marching higher. Apparently I have some good company when it comes to this concern….
In this link, Passport Capital Founder and Chief Investing Officer John Burbank discusses his outlook for the markets and his concerns about a 1987 replay on Bloomberg TV’s ” Market Makers.”
In addition the most recent regulatory filing from Soros Fund Management reveals that the investment vehicle of legendary investor George Soros has increased its S&P 500 put option position to $2.2 billion or 17 percent of assets under management. In other words, they remain long on stocks, but at the same time have increased their investment in securities that will rise in value if the stock market were to crash.
To believe that the stock market will rise significantly from its recent August highs, when the S&P 500 reached over 1,700 points or not revisit near its lows, is to bet that it is different this time. The famous declaration of legendary investor, Sir John Templeton, that, “The four most dangerous words in investing are, it’s different this time” has over the past few months become particularly pertinent. The secular bear market that began in 2000 (when investors believed it was different that time and the Internet had fundamentally changed the nature of the stock market removing the risk of a major bear market) would need to have ended in the 2009 bottom for the stock market to now rise significantly higher or not fall to around previous lows. But there is little reason to believe this time is different, that stocks entered a new secular bull market in 2009, well below the typical duration of a secular bear market and that the odds now favor a heavy allocation to stocks.