A trio of views to guide investors

By Bill Fleckenstein

Recently I read three extremely thought-provoking articles. Although none made me want to rush out and buy stocks, they're certainly worth bringing to the attention of my readers.

The first: Jeremy Grantham's latest quarterly letter, headlined "The Last Hurrah and Seven Lean Years" (.pdf file). I encourage everyone to read it, save it and read it a few more times. This is one of the best investment articles I've encountered in my 30 years as a money manager.

Imagining the outcomes

Grantham does a particularly good job of explaining why trying to come up with guesses about market outcomes -- a fool's game that those of us in the business are always engaged in -- is more difficult now than it has been at many junctures in the recent past.

I won't try to paraphrase his view on where we are right now because, as he notes, in light of the environment, one has to give one's best ideas a wide berth.

That said, Grantham does present his own probabilities for various outcomes. He also shares some really interesting insights regarding investment "rigor mortis," a very seductive and dangerous trap that catches nearly everyone on occasion and keeps them from moving when it's time for action.

In addition, he introduces the concept of a recovery that has a "VL" shape, which I find quite interesting. This is an economy "in which the stimulus causes a fairly quick but superficial recovery, followed by a second decline, followed in turn by a long, drawn-out period of sub-normal growth."

Regarding all the stimuli government is handing out, Grantham makes a point that I have thought about but not expressed: Stocks react to stimuli a lot more quickly than the economy reacts.

His expansion of that belief: "If the stock market is many times more sensitive to financial stimulus in the short term than the economy is, then we could easily get a prodigious response to the greatest monetary and fiscal stimulus by far in U.S. history."

Determining what's next

The second article is by Jim Stack of InvesTech Research, one of the best investment services available at a reasonable price. Jim's recent commentary straddles the fence, trying to decide whether the recent move up is a bear market rally or a new bull market. Some of his technical measures are shaping up to suggest odds that the market will trade higher before it trades aggressively lower.

Importantly, he notes that the Coppock Guide, a model I have followed for 20 years (but regrettably not adhered to), could turn positive if the Standard & Poor's 500 Index ($INX) holds above the 875 level through the end of this month. For those who don't know, this is a technical measure that has enjoyed a pretty darned good record over the past 90 years or so in terms of identifying low-risk buying opportunities.

Continued: A born-again gold bull

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