Why the Market Bears Are Roaring

Mr. P, to whom I grant anonymity, is often very right -- and even when he's wrong, he can make you money. When first introduced in my column in early 2001, he called the Federal Reserve's hikes and bear-market action turn by turn. In the autumn of 2004, he called for a bear market and recession in 2005, which was wrong, but he advised buying metals and energy, which was right on: A set of 10 metal and chemical stocks he endorsed then is up 53% since vs. 9% for the market, led by a 190% advance in Commercial Metals(CMC Quote) and a 105% move in Phelps Dodge(PD Quote).

Why is he negative on the market now? A couple of things. An arch-conservative, Mr. P has become highly concerned about the loss of confidence in President Bush, both domestically and overseas. He faults Bush for not working hard enough at his job and hiring badly.

Because Mr. P deals with major European, Arab and Asian investors all the time, he understands how important foreigners are to our stock market. You see, most U.S. pension and mutual fund managers are already fully invested in our market. They steadily get more fund flows from U.S. workers' retirement plans every month, but that only really keeps the machine rolling at a steady pace. To get the market moving dramatically higher, Wall Street needs incremental new inflows from overseas pension-fund managers.

Political Worries

Foreign investors are very sophisticated about U.S. politics. Most have gone to the best schools in America, travel here frequently and pay a lot of money for top consultants. They are not naive. Foreign investors care a lot about leadership, Mr. P says. They don't really care if a Democrat or a Republican is in control of the White House. They just want someone firmly in charge so that they can have confidence that the money that they are entrusting here is safe.