It's too early to be bullish

Sitting on cash amid credit trash

Another investor with a tremendous track record who thinks the worst has not been seen is Bob Rodriguez of First Pacific Advisors. In a recent Fortune article, he noted that his cash position is now at 42% and that despite looking around, he doesn't see enough compelling investment ideas. As he says in the article, "High interest rates didn't cause a credit crisis, so why should interest-rate cuts solve it?"

Lastly, Justin Mamis of The Mamis Letter recently noted that bear markets typically involve three legs: denial, realization and give-up. It's his view that we may have experienced the first leg but that the second one is yet to come. This realization leg occurs when people comprehend why the market is going down and sell stocks in response. As he points out: "A bear market can't end -- never has -- until denial turns into realization. . . . This is a long process, because the light bulb doesn't come on collectively but gradually. Some are quicker to catch on, or less dumb, than others."

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As to the give-up leg, Mamis characterizes it as the culminating phase. So, given that we may have seen only the first leg, his eyes and his words are telling him that the process has a long way to go and stocks have a long way to fall.

3 beauties in waiting?

Of course, that doesn't mean there won't be rallies from time to time or that we won't occasionally see some interesting stocks to buy. Jim Grant, in the latest issue of Grant's Interest Rate Observer, makes a compelling case for PHH Corp. (PHH, news, msgs), United Rentals (URI, news, msgs) and Harman International Industries (HAR, news, msgs).

He noted: "In the case of the three stocks we looked at, we find them attractive only because they are so cheap. They have been through a terrific bear market of their own (as busted-deal stocks), and the rest of the market may or may not follow that downward trajectory. It's on that macro point that I am simply agnostic."

To sum up, I believe the better arguments are made by those folks who see trouble ahead (though it's worth evaluating the comments from those who see it differently). Everyone has different strategies and stances, including those in the bullish camp, who think that the bad news has already been discounted. But to me, that seems virtually impossible.

At the time of publication, Bill Fleckenstein did not own or control shares of any of the equities mentioned in this column.

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