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Sentiment Is "Off The Charts" Bullish
Submitted by Lance Roberts of STA Wealth Management,
There have been a litany of articles written recently discussing how the stock market is set for a continued bull rally. The are some primary points that are common threads among each of these articles which are: 1) interest rates are low, 2) corporate profitability is high, and; 3) the global cabal of Central Banks will continue to put a floor under stocks. While I do not disagree with any of those points - it should be remembered that each is artificially influenced by outside factors. Interest rates are low because of Central Bank actions; corporate profitability is high due to share buybacks and accounting gimmickry,l and Central Bank interventions have artificially inflated asset prices.
However, while the promise of a continued bull market is very enticing it is important to remember that as investors we have only one job: "Buy Low/Sell High." It is a simple rule that is more often than not forgotten as "greed" replaces "logic." However, it is also that simple emotion of greed that tends to lead to devastating losses. Therefore, if your portfolio, and ultimately your retirement, is dependent upon the thesis of a continued bull market you should at least consider the following charts.
It is often stated that valuations are still cheap. The chart below shows Dr. Robert Shiller's cyclically adjusted P/E ratio. The problem is that current valuations only appear cheap when compared to the peak in 2000. In order to put valuations into perspective, I have capped P/E's at 25x trailing earnings which has been the level where secular bull markets have previously ended. I have noted the peak valuations in periods that have exceeded that level.
The next chart is Tobin's Q Ratio. James Tobin of Yale University, Nobel laureate in economics, hypothesized that the combined market value of all the companies on the stock market should be about equal to their replacement costs. The Q ratio is calculated as the market value of a company divided by the replacement value of the firm's assets. With the exception of the "tech bubble" we are near the peak of every major bull market in history.
Another argument consistently made is that retail investors are just now beginning to jump into the market. The chart below shows the percentage of stocks, bonds and cash owned by individual investors according to the American Association of Individual Investor's survey. As you can see, equity ownership and near record low levels of cash suggest that the individual investor is "all in." Also, note that when these levels reverse it has been coincident with intermediate and major market corrections.
Of course, with investors fully committed to stocks it is not surprising to see margin debt as a percentage of the S&P 500 at record levels also. It is important to notice that sharp spikes in this ratio have always coincided with market corrections of which some have been much worse than others. The chart below shows inflation-adjusted margin debt as a percentage of the economy. Current levels are excessively optimistic.
Bob Farrell's rule #9 basically states that when everyone agrees; something else is bound to happen. The next two charts show the level of "bullishness" of both individual investors (AAII Survey) and a composite index of individual and institutional money managers (AAII & INVI Surveys). Never before in history have investors been so bullish.
As I stated above - investors are just plain "giddy" about the market.
And "complacency" in the financial markets is also at levels that have had poor future outcomes.
Lastly, an important chart I have shown previously, the deviation of the S&P 500 and the Wilshire 5000 from their respective 36-month moving average is at levels that have only been seen at four other periods previously.
As a money manager, I am currently long the stock market. I must be, or I potentially suffer career risk. However, my job as an advisor is not only to make money for my clients, but also to preserve their gains and investment capital as much as possible. Understanding the bullish arguments is surely important but the risk to investors is not a continued rise in asset prices, but the eventual reversion that will occur. Unfortunately, since most individuals only consider the "bull case," as it creates confirmation bias for their "greed" emotion, they never see the "train a'comin."
Hopefully, these charts will give you some food for thought. With everybody so bullish, what could possibly go wrong?
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Nice Tits, er , i mean Graphs
I'm not bullish. And I've lost 20% on SPXS....
This will end well. So how much do you think my new Ebola app will make if I market it through the iCompany and it promises to detect cases near you and cure herpes and zits?
Listen Zero's.
Not to worry. If the USSA market exhibits any weakness the Federal Plunge Protectors will step in. They have even promised as much.
How can you even think of shorting that game?
That's why you short it jackass. So it's just that easy. Just buy. Why would you waste time here and be a bazillionaire
Listen Chavez.
Sometimes I like to visualize how my fellow ZH'ers appear in real life. I'm having issue with your image and request your assistance.
Is this you bro? Close?
http://cdn1.smosh.com/sites/default/files/legacy.images/smosh-pit/052011...
Don't worry, be happy with what you have now.
http://www.forbes.com/sites/eamonnfingleton/2014/11/12/obama-in-china-taking-candy-from-a-baby/?partner=yahootix
Weird--it does look so much like me---no idea what your point is though--why don't you just get wealthy as hell and get balls long--so easy - why wast anytime here with all that money to spend
BE, when the time comes, it will be the dollar that is in trouble, not the valuations of things denominated in dollars (except the PMs). And for THAT, no plunge protection team, no FED, no US entity can do a thing. Forward, Zimbamerica - yes you can(not).
Don't market an Ebola app, as it only has one, maybe two uses. No, market a FUD app. It will work whether the event is real or not.
An American, not US subject.
Federal Plunge Protectors. Sounds like a new brand of condoms, used by Bobby Brown for financial 'plunges'.
I'm keeping my financial back to the wall.
The old cliche "the market can remain irrational longer than you can remain solvent" applies more than ever...
Trying to play with short ETF's is a fools game
I've lost a lot more than 20% - these levels are insane.
DavidC
No shit. Why not buy some at this point? Worth the risk of near nil.
from wiki: In December 2007 Abby Joseph Cohen predicted the S&P 500 index would reach 1,675 in 2008. The S&P 500 traded as low as 741.02 by November 2008, 55% below her prediction...
Today: http://www.bloomberg.com/video/abby-joseph-cohen-12-months-from-now-s-p-...
as close to a sign from god as the bears could ever hope for
"I can see no bubbles." - Mother Yellen
It's different this time.
"It's different this time."
Yup, I have a guillotine in the backyard.
An American, not US subject.
Oh , God, why do I keep clicking on these stories?
Because you're searcher of truth in a world of lies.
DavidC
"He was born with the gift of laughter and a sense that the world was mad."
Votaire
I like your screen name and your use of that quote. I have to point out, though, that the source of your quote is the first line of Rafael Sabatini's 1921 novel Scaramouche
The problem we've all faced is the bears have been wrong for the last 6 years.
The bigger problem though will be that bears will eventually be right, all at once.
I suspect things won't be pretty when this happens.
Sentiment is ' Off the Charts ' BULLSHIT
FIFY
<”…1) interest rates are low, 2) corporate profitability is high, and; 3) the global cabal of Central Banks will continue to put a floor under stocks. While I do not disagree with any of those points - it should be remembered that each is artificially influenced by outside factors. Interest rates are low because of Central Bank actions; corporate profitability is high due to share buybacks and accounting gimmickry,l and Central Bank interventions have artificially inflated asset prices….”>
Right, and every f***ing person who has fought this has had their faces ripped off. The bears WILL get their turn, but it will take something like WWIII to start the ball rolling downhill. The ‘New Normal’ is here to stay. Anyone trying to use inverse ETFs or go short will face Fed jawboning and then more QE, and will quickly have a very sore ass. There is nothing more important than the stock markets, not wars, plagues, or earthquakes. People love money and worship those that print it and hand it to them. Americans will borrow and spend to buy useless crap, with no limits thanks to the Fed bankers and EBT cards. It may seem unsustainable to some, but those two fat chicks sitting on the sidewalk in front of that store, say otherwise.
Temerity
2nd good laugh of the day. I can see those two fat chicks. Thanks.
I see more than 2 fat chicks. I see a ton of them.
Right for the most part. "Here to stay" is only until the BRICS (esp. C/R) pull the rug out under the dollar with the yellow bricks that THEY DO have, and the west once had. They hold enough dollars and just wait for the opportune moment. For now this all still plays in their hands. They get more bricks at a discount, so why not play along... Their enemy is in self-distruction mode and they don't have to do a thing... For now it's a win-win so yes, the shenanigans will likely go on a bit longer, at least long as the flow of bricks to the east is maintained. Watch GLD. When its bleeding stops then the west has hit the end of the fiat road.
Permanently high plateau.
Listen Hits.
Poignant for our bears. Though, too, I must steal a few more puppies.
Might as well, BE, might as well.
Short financials as the new AG is gonna get tough on banksters? No Fucking Way. Long criminal banking enterprises.
ZH, your POP UP is becoming damn bloody irritating. No, I DO NOT need S&P's capital IQ.
I just want to say one thing: God bless America
What could possibly go wrong? Money velocity approaches zero, S&P @ 2500, the real economy is inexistent, and the world dumps the "strong" dollar to cash in (for gold). Game over. America, yes you've had a good run, thank your master printers. You voted for change, you'll get change. And hang on to your change, you might need it for barter soon. Best of luck.
Yellen passed the QE baton to Kuroda and Draghi. Kuroda leading the way in the race to the bottom.
Has anybody been following the Russian central bank's decision to float the RUB? The "impossible trinity" in action!
I'm hanging to also see ISIS issue the gold Dinar in circ, that would be interesting if it wasn't propaganda. I wonder who would mint the coins.