Wed, May 23, 2012, 1:24 AM EDT - U.S. Markets open in 8 hrs 6 mins

Global Bear Market Reality Is Here: Simon Baker

Simon Baker of Baker Avenue Asset Management is neither perma-bear nor bull; he's a perma-realist trying to make and keep money for his clients. So far Baker has been doing a good job for Breakout viewers. Simon came on in May and told people he was getting out of Chinese markets; the (FXI) ETF of Chinese stocks is down 27% since then. On August 15th Simon incurred the wrath of the long-side faithful by declaring "Buy and Hold" dead. The S&P500 closed at 1,204 that day and moved between 1,200 and the low 1,100's six times since.

With stocks stabilizing today after a crazy week I asked Simon to share what his latest indicators are telling us today. As usual his take is pragmatic, if a little dark. "People keep talking about whether we're going into a recession...the reality is we're here," he says.

To support his case, Baker notes the performance of copper, or "Dr. Copper" as it's called by market pros for the base metal's ability to predict economic action. Typically when copper is moving higher, or at least stable over $4, the economy is in at least okay shape. Copper is down over 17% in September, currently sitting somewhere in the mid-$3.00's.

Another portent of ill are the Dow Transports (^DJT), as evidenced by the FedEx' (FDX) horrific quarter and warning this week. "If people aren't shipping then people aren't buying," notes Baker. For Dow Transport traditionalists, weak transports mean a weak economy, which means bad things for stocks.

However Baker isn't tied to these traditional metrics. He puts them together in a proprietary index he calls the "BAMSI" --Baker Ave Market Sentiment Indicator. The BAMSI is a basket of over 4,000 stocks, measuring momentum and market sentiment. The indicator remains negative.

Frightening as it sounds, it's not a cry to run screaming into cash. Baker is simply suggesting investors review their goals and decide whether the risk is worth the reward. The situation in the economy, Europe, and the technicals are reminiscent of this time in 2008, but the analogy is almost too obvious to be a trade. It's time for smart market participants to ask themselves "do they want to participate or not participate?" This may not be a buying opportunity but the sell-off is a chance to evaluate your emotional state in regards to stocks. This volatility isn't for everyone; if the swings are making you crazy Simon Baker suggests investing discretion is the better part of valor.

Breakout Asks

Do you think Facebook (FB) will end this year above or below its IPO price of $38 a share?

Loading...
Poll Choice Options
  • Yes, FB will recover
  • No, FB is too unstable
 

26 comments

  • Kyle.Keyes  •  8 months ago
    Put your money in your mattress.
  • AmericansFirst  •  8 months ago
    Prior to 1975 stimulus increased purchases of American made goods and thus American jobs ! Now it stimulates some American jobs but mostly purchases now are imports thus increasing deficits ! The NWO and globalism caused this problem ! There is no free lunch ! The deficits at all levels will be paid for by higher income taxes and property taxes !! Flat taxes will reduce import purchases by the low and middle income but will also hurt domestic businesses, jobs, services, charities, and etc ! Import taxes will reduce imports and deficits and stimulate investment in American owned manufacturing jobs and tax base !
  • AmericansFirst  •  8 months ago
    The reduction in interest rates was offset by the loss to American savers who didn't earn as much and as a result consume as much !
  • Mister Z  •  8 months ago
    is the risk worth the reward??
    that is the question.
    • frankmargel.com 8 months ago
      Knowing your risk tolerance is less risky than not knowing your risk tolerance, right? Invest wisely, thanks for the post! Thumbs up!
    • Mister Z 8 months ago
      My risk tolerance gets lower the older I get.
    • TechDave 8 months ago
      Knowing your tolerance is easy - how much can you afford to lose? Knowing your risk and reward is harder. It involves knowing the future. Managing your risk is the essence of investing. Buy with a plan. Watch your investments.
  • anatol  •  8 months ago
    In my opinion the stock market will be flat or evend decline significantly for the foreseeble future (I mean 3-5 years). The economy is virually in a state of depression, and any significant gains are purely psychlogically and anecdotally dirven (like the gains beween 2009 and two months ago). If you are a good mass psychologist you could make out with some cash, but this will be pure speculation and have nothing to do with the grim economic reality of the next decade.

    There will be crests and troughs from the wave-like reverberations of the Globalized market from one end of the world to the other creating surge -like effects induced by "good" or "bad" news, and an experiened speculator can take advantage of this, but otherwise the author is right - it's a bear market and probably not for the long term investor.
  • EmEs 1334  •  8 months ago
    If you buy stocks with solid dividends, then you are getting at least a rate of return and can wait out the ups and downs. That kind of buying and holding is probably better than cash or investing in any government bond. Or you can be a trader and buy a little every time the market goes down 300 and sell when it goes up 300....
  • AmericansFirst  •  8 months ago
    The multi nationals and the instituions like the IMF and World Bank needs to pay off all internaitonal debt ! Greenspan and other global individuals need to be held accountable like Fords, Rockefellers, Carter, Bushes, Clintons, etal !
  • Toadaly  •  8 months ago
    If the world financial system does not implode, then people will look back on Sep 2011 as a good buying opportunity. But if it does, we will look back at this time as the last chance to have saved your skin getting out of the market. The upside potential is not nearly as good as the downside potential is bad.
  • John  •  8 months ago
    It's like going out swimming for sea shells in shark infested waters, is the potential gain worth the potential loss?
  • Duck  •  8 months ago
    FedEx Corporation reported first quarter fiscal 2012 adjusted earnings of $1.46 per share, increasing 22% from $1.20 earned in the year-ago quarter.
    Total revenue climbed 11% year over year to $10.52 billion.
    Operating income increased 17% year over year to $737 million, resulting in operating margin of 7% compared with 6.6% in the year-ago quarter.
    THAT"S A HORRIFIC QUARTER??????
  • William  •  8 months ago
    Could we finally question wether growth is dead? How does this play into the hyper or high frequency trades? Can we get to a place where individual companies are valued for the value they bring society and the value of their balance sheets? It seems we can but need to bring back oversight of big banks/market makers/HF traders and endless ways to skim money from public. Until then it seems individuals should just say NO to the corruption and market swings created as pump and dump for the few. jmo
  • Joe  •  8 months ago
    Really?
  • Philico  •  8 months ago
    What I hate: gold, leverage, day trading, speculation, living beyond my means
    What I like: long term investing, modesty, earning my money, saving & caring about the future
  • frankmargel.com  •  8 months ago
    I found this interview top notch! Great information, technicals, a strong Q and A! Thumbs up! The verdict? Global markets are selling off and a global depression cannot be ruled out! Are you calling these trends positive? ...smiles...! NEXT!
    • Macke 8 months ago
      I inverted an S&P graph both vertically and horizontally today to make the downtrend move upward and to the right.

      Let's just say you wouldn't short this tape if it looked like this going higher.

      - Macke
    • frankmargel.com 8 months ago
      Macke inverted... LMFAO! Thanks! ...big smiles...! WOW! The man! Happy Friday babe! Thumbs up!
  • Road Warrior  •  8 months ago
    I think the USA will become a 'safe haven' again. Gold is overpriced. Peace dividend will losen up more resources to balance budgets and pay down debt, rebuild infrastructure. ... But I am an optimist. ... Peace.
  • King  •  8 months ago
    Hello,

    This is the CIO at Baker Avenue. There appears to be some confusion about our Baker Avenue Market Sentiment Indicator (BAMSI) that we would like to address.

    The BAMSI measures the trends of the stock market on an index of over 4,000 stocks. When greater than 50% of stocks in the index are showing positive trends, it indicates a positive market sentiment (a rising tide lifts all ships), while less than 50% indicates a negative market sentiment (it’s more difficult to make money when more stocks are falling than rising).

    With over 40 years of this data we have found that when the BAMSI is negative, market risk is greater with higher volatility. The market is 7 times more likely to have drawdowns of greater than 5% when the BAMSI is negative.

    It’s all about protecting against large losses, folks. When you are down 10%, you need 11% to breakeven. But when you are down 40% like a lot of investors in 2008, you need to generate 67% to breakeven.
    • Macke 8 months ago
      Sorry for any confusion.

      - Macke
  • downdipper  •  8 months ago
    Quick, run out and sell your gold and silver and trade for cash, I HEARD THE STORES ARE RUNNING SHORT OF TOILET PAPER!!
  • Chet  •  8 months ago
    This is the 'Solyndra' economy.... It could be hours before a serious correction or 'Financial Collapse II' and we'll be hearing from geithner, The Bernank, and Ponzi Street, that everything is fine.
  • JOE  •  8 months ago
    The "Game" isn't worth playing- never was, and never will be. Why? It's a pyramid scheme- even if you win, there's some poor fool who ate it. It's a zero sum game, and the hidden costs are sweat shops or the exploitation of the environment. The "creation of wealth" is just another spin sugar coating the underlying exploitation. Am I bringing you down? Good!
  • Rock Solid Truth  •  8 months ago
    Capital preservation. Defense. End of growth as a model. Sustainability. Everyone is piling into treasuries before they go to negative interest. It is the safest place to park cash. If you hold to maturity....you get your money back. Banks.....questionable again. Bonds...corporate bonds in staples okay if you hold ...not to trade. The idea is to park your cash (if over 250,000 FDIC) somewhere that is out of the banking system....where the maturity dollar amount cannot (will not) go below the purchase amount. All other investment vehicles are for only the very very best poker players at this time.
    • frankmargel.com 8 months ago
      Growth and income, and large caps, it's a buying oppurtunity when markets sell off! It's a no brainer if you have strategy and experience. I don'y buy the "big guys" are as wise as you profess. Thanks anyway! Thumbs down!
    • downdipper 8 months ago
      Quick, run out and sell your gold and silver, I HEARD THE STORES ARE RUNNING OUT OF TOILET PAPER!!

ABOUT BREAKOUT

Breakout is Yahoo! Finance’s daily all-out, roll-up-your-sleeves, dive-in, interactive investing show, offering fresh segments throughout the trading day. If you love making money, if you want to protect what you have, if you’re passionate about understanding these crazy markets, you’re in the right place. Welcome!

MEET THE TEAM: Matt Nesto, Jeff Macke, Aaron Task, Jennifer Carinci and Kevin Chupka

Investing 101

Subscribe and RSS

[X]

How to subscribe

Roll over each section to subscribe using Add to My Yahoo! or RSS Feed feeds.

Yahoo! News offers dozens of RSS feeds you can read in My Yahoo! or using third-party RSS news reader software. Click here to find out more about RSS and how you can use it with Yahoo! News.

DISCLAIMER

Merrill Lynch is not responsible for any content on this site.
 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.