Investor Sentiment

This was not supposed to happen.

"Public statements, media reports and market data reveal that Beijing unleashed 5 trillion yuan in funds - equivalent to nearly 10 percent of China's GDP in 2014 and greater than the 4 trillion yuan it committed in response to the global financial crisis - to calm a savage share sell-off. Beijing has thus produced the equivalent of around 1 index point gain for every $1 billion committed," Reuters reports.

Chinese Gold reserves jump 604 tons from 1,054 tons last reported in 2009 to 1,658 tons. Many gold observers ask: "Is that it"? Since 2009 China has mined over 2,000 tons of gold and imported over 3,300 tons of gold through Hong Kong*. Where did it all go?

"The European Central Bank has introduced secret credit lines to Bulgaria and Romania as part of a broader effort to convince foreign regulators not to pull the plug on the local subsidiaries of Greek banks," FT reports.

Chinese markets bounced last night following drastic intervention by the state when it banned large players from selling their shares in listed companies – arresting the over 30% decline of the past four weeks.

The ECB is moving to backstop Bulgaria's banking sector in an effort to get ahead of a Greek contagion."The ECB would provide access to its refinancing operations, offering euros to the banking system against eligible collateral," Bloomberg reports, citing unnamed sources. 

"Millions of people in ex-Communist Bulgaria, Macedonia, Albania, Serbia and Romania have deposits in banks owned by Greek lenders, putting this corner of south-eastern Europe in the frontline if there is contagion from the Greek crisis."

"Japanese day traders, colloquially and collectively known as 'Mrs Watanabe', are buying the yen as it nears eight-year lows," Nikkei reports. For their part, private equity firms are cashing out at what they figure may be the top for Japanese stocks.

There’s no question that the general level of stock investor sentiment is at historically high levels at this time. However, what has largely been absent, though, despite the elevated sentiment are examples of veritable investor euphoria. We did see traces of it over the past 2 years, especially in early 2013, but nothing consistent. Yesterday, however, we did see a possible example of this type of euphoria from the International Securities Exchange.

Q: How do you make a small fortune on Wall Street?

A: Start with a large fortune.

~ old investing adage

For 6 months, investors have been buying the idea - pitched by any and every status-quo-sustaining talking head, politician, and central banker - that low oil prices are unequivocally good for America. This has manifested itself in retail stocks handily outperforming the S&P. However, as Bloomberg notes, the last few weeks has seen that reverse dramatically as it appears investors, losing faith in the big-takers, have realized that "consumers aren't spending as much of the money saved from lower gasoline prices."

In 2014, all but a few argued that the path of interest rates was certainly higher. Despite a steady decline beginning on January 1st of 2014 and continuing today, everyone still insists strenuously that interest rates simply have to go up. What if all the arguments about growth in the US economy and much anticipated rate hikes by the Federal Reserve hinged upon a decision-making premise that is flawed? What if instead of the standard and variety of factors informing the consensus perspective about the direction of interest rates it is actually interest rates themselves that are sending signals that should inform our perspective about all other things?

Explaining the catalysts that move the "market" overnight has become so farcical it is practically an exercise in futility and absurdism.

"Never, since 1900, have investors been this persistently bullish," warns Wells Fargo's Jim Paulsen. While the 13 previous cautionary signals since 1900 suggesting investor sentiment was too high have not been perfect, they have proved to be fairly good warning signs; and along with "massive overvaluation", and a dramatic "decoupling of markets from economic productivity" this extreme sentiment reading completes the trifecta of flashing red warning signs for US equity markets.