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Guest Post: Complacency Risk Is High
Submitted by Lance Roberts of StreetTalk Advisors
Complacency Risk Is High
As I was writing this past weekend's newsletter "A Technical Review Of The Markets" it really dawned on me just how complacent investors have become on the economy, the markets and risk in general. The mainstream media, and most of analysts, are looking at recent improvements in the economic data as a sign that the economy has begun to make a turn for the better. This view is further supported by the rise of the stock market.
With a couple of breadcrumbs, a sprinkle of "hope" and a cup of optimism - analysts, economists and investors have whipped up the perfect concoction by extrapolating recent upticks into long term future advances. However, this is a game that we have seen play out repeatedly before.
Take a look at the chart of the volatility index versus the S&P 500. The media and analyst community were convinced early on in 2007, even though we did protest heavily, that the economy would experience a "Goldilocks scenario" and the economy would "muddle through." As the market declined, and one indication after another showed that the coming crisis would be far worse than people imagined, investors remained complacent until the "Oh $#@!" moment occurred. Unfortunately, by that time it was far too late. The same thing occurred in 2009 as the Fed intervened with quantitative easing and then again in 2010 with Q.E. 2. Each time, as the volatility index retraced back to levels of complacency, the seeds were sown for the next "Oh $#@!" moment.
Reminiscent of the "Perfect Storm" where the Captain of the Andrea Gail gets a brief reprieve from danger as the eye of the storm passed by - investors today are currently basking in warmth of rally not realizing that much more danger lies ahead. Bullish sentiment, as measured by the composite of AAII and Investors Intelligence indexes, is currently at very bullish levels. While this does not mean that a market correction of some magnitude is imminent - it does mean that most likely further gains are likely to be small and the next correction is likely not too far away.
David Rosenberg agreed with this veiw point in today's missive:
- "Most measures of market sentiment are back to where they were last May just when the S&P 500 was peaking.
- Short interest has dried up to three year lows.
- The VIX closed the week below 20 for the first time since last July.
- As Mike Santoli points out in Barron's, volume in leveraged ETF's versus bearish ones has risen to levels that in the past touched off interim market pullbacks.
- Credit market indicators have lagged well behind the improvement in equity performance.
- The S&P 500 is three standard deviation points above its 20-day moving average.
- Again, as Barron's points out, the ratio of the 15-day volume puts on the S&P 100 Index to bullish call volume hit 2-to-1 last week - this happened in the February 2007, February 2011 and April 2011."
As I said in this past weekend's newsletter if you look at the markets, commodities, bonds and the dollar there is really not much that is screaming "BUY ME" at the current time. The markets are very overbought on a short term basis and further gains are likely to be limited.
This is not a prediction of the next bear market cycle or the next recession. Those are coming, either sooner or later, as they are a function of the economic and business cycle. The current trend of the market is bullish and the majority of our "buy signals" are aligned. However, the level of complacency that has surrounded this recent rally is getting to dangerous levels and it is only a function of time before the next "Oh $#@!" moment arrives.
As Mike Santoli pointed out in his piece in Barron's: "Each instance foretold an imminent correction of some significance...the notion that equities have gotten slightly ahead of themselves is as valid now as it was a year ago." Trade accordingly.
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Watch the mainstream media (CNBC Today) explain why the economy and the market has begun to make a turn for the better:
http://www.youtube.com/watch?v=xdzHUO23_fU
HaHaHa:
With a couple of breadcrumbs, a sprinkle of "hope" and a cup of optimism.
Win Win Win Win Win Win
oh shit CNBC now saying things are looking up? time to pile on the short positions
OT, but oh so worth it (especially since it proves us 'cynics' correct - especially about the role of the Wall Street knob-sucking Federal Reserve):
11 stunning revelations from Larry Summers’s secret economics memo to Barack Obama
who gives a crap what TV people say? bottom line is if you believe SI is going higher, so will stocks. This article is bullsheet in equating short term VIX pullbacks with investor complacency. The VIX is a lagging indicator; just a measurement of reactions to sell-offs. One might also just as easily interpret the first chart as having higher lows and higher highs, interspersed with spikes in the VIX.
If I were you, I would go all in long. RoboTard can help you pick some winners.
thanks for the advice Suze! now, don't bogart that joint Jerry, and move along.
Bed, Bath, and Beyond: FUCK YEAH!
Living systems are a complex dance of forces which find a stability far from balance. Any attainment of balance is quickly met by rising pain which ends the momentary experience of satisfaction or contentment achieved. Buddha's task was to find the solution to this never ending descent into dissatisfaction or Dukkha. The Buddhist faith is based on the belief that he succeeded. Thanks.
Regards,
air charter plane
Risk is ubiquitous in all areas of life and risk management is something that we all must do, whether we are managing a major organization or simply crossing the road. When describing risk however, it is convenient to consider that risk practitioners operate in some specific practice areas.Thanks.
Regards,
network penetration testing
apathy, bitchez!
(I couldn't help myself)
+ $55,000
Good time to show up here TF! Gold, baby, gold.
True. Election year, all options are on the table as today's EU oil decision shows.
Review of last weekend's Barron's at my blog. Curious? Gmail me at my name, promise to behave and I'll send you the link. I write about gold & stocks and stuff.
http://robertmixblog.blogspot.com/
Nice blog
"No one" being granted the privilege of being invited on cnBSc (to speak to their 2,063 viewers) will have been able to have seen the next wipeout coming, in its retrospective wake.
"No one."
Go Barton 'Smally' Biggs, or go home....Playa.
*The Abby Joseph Cohen came out of her deeply burrowed mud pit today and saw her shadow, which means there will be at least 6 more weeks of spooz-a-licious upside, propelled by the hand of The Bernank [10 year tbill to 0.00000002% and spooz to 1550 in 6 weeks].
There is literally no support on the ES until 1173-1200. This market is a disaster waiting to happen.
The hammer is coming down soon, time to get into cash...
But RoboRoach says the S&P is going to 1500 within weeks and muni's and Govt. shit bonds will be setting records!
CNBC just rolled out the "stocks are cheap" headline. The bulls are getting desperate.
"stocks are cheap"???
On CNBC I believe that is the premise of every segment they have since they have existed. The only debate they have is "Are stocks going up 20% or 30% in the next 6 months".
Yup, Joe Kernan loves that 30% number.
There's a lot of cash (and even far more debt) on the sideline, bitchez.
With most of the world’s major economies as well as the financial system bankrupt, there is only one solution that can save the world economy. Like in the Greek tragedies, Deus ex Machina is now the only way that the world can avoid a total economic collapse. This would involve God being lowered down onto the world stage and miraculously saving the plot.
More:
http://www.mmnews.de/index.php/english-news/9031-deus-ex-machina
Good luck with that. God is short the market and long gold.
The BDI is still dropping fast. This is not normal. Something's coming and it won't be pretty.
'This is not normal.'
Check the 3Y or 5Y, many waterfall declines just never from this low of a level...
Um, a trade war maybe? Or just a plain old fashioned one?
Seriously if the tempo of escalation is somewhat surprising but if this hasn't been on your radar for some time, then you need to start paying attention.
Um, let's just agree that it looks pretty fucking ugly. BDIY well below 1000 and still dropping. There is simply no demand for anything. Just go into any shop, anywhere. Count containers and ships at the biggest ports. See how many trains are going loaded with containers.
US fuel consumption at 1997 levels. It all makes sense if you're willing to admit that this economy is garbage. There are no jobs and there is no growth coming from anywhere. Sucks to be stuck in this realm.
janet napolitano in a thong?
That's not funny man - I'm eating lunch over here.
New ships.
No. Fact: many new ships were cancelled or mothballed
Correct. Some investment funds promising decent returns on shipping contracts and ship leases are sweating guaranteed.
The real economy is going into the crapper. Political leaders around the world are aware. They cannot miss this. Sharp drops in mining stocks as well across the board. This translates into a lack of future demand. No more Chinese or Spanish ghost cities or suburbs with 10% occupancy.
At this rate the market that we're presented on TeeVee will have absolutely nothing to do with the real market which is on its way to a massive global contraction.
For Fuck's sake, we have a number of very large European economies entering harsh recession with massive austerity programs. We have a sudden slow down in Chinese aggregate demand and India's currency and purchasing power are falling off a cliff. Top it all off with the US going to breach their ficticious debt ceiling for the inth time and a world that is moving to trade outside of reserve currency mandates.
This is no longer isolated or unique to any one country or continent. This is global economic collapse of unimaginable proportions. Who cares how the S&P or DJI are closing today, tomorrow or next month? It's a propaganda piece as far as I'm concerned.
There are 7 billion people on this planet that need to eat and drink. There are massive amounts of wealth in very few hands and a mirage of a worldwide peace.
It will be a dog eat dog world and each one for themselves. Doesn't take rocket science to figure this one out.
Just, Stop It!...You're Scaring me!
What about the "American Dream"?
Nah, you can handle it or you wouldn't be here. So? What about that "Dream"? One man's dream is another man's nightmare.
Haaaaa - Greece is aiming to present a final, final, final deal to its creditors by 13 February - seven days after the government's original target date. Guess it really will never end (on and on and on we go)
This is not a prediction of the next bear market cycle or the next recession. Those are coming, either sooner or later, as they are a function of the economic and business cycle
it used to be that "the business cycle" = the credit expansion cycle
Now..."the business cycle" = the money printing cycle
No...the credit expansion cycle = fractional reserve lending = money printing = business cycle.
"slightly ahead of themselves". Yeah right, how about 3 years early. Remember, tops are a process, way too easy to peak and then move dramatically lower. Get the bulls in, let the bears set up with great charts, then whipsaw the crap out of both. When Mr. Market is done with them, when he spits them out and stamps them out, both bulls and bears.... then he will dump. Hate to say it but holding confetti feels good, if only for a while.
Remember Mr. Market always wins.
While nothing looks attractive,other than gold, I can't help but think the Bernank is going to keep his foot on the accelerator until after the election. As ugly as the negative yeild on bonds are any dip in equities will send yeilds lower. It is interestig to note that the ten and the thirty have been selling off a bit.
Bernanke can't justify printing when the economy is doing better than expected. QE3 is not happening in these market conditions. There really no need - Draghi is doing enough.
The Bernank is doing the Bawny Fwank. He's doing it through the back door.
But the economy is 'doing better than expected' due to Bernank's own actions of flooding the world with tsunamis of fake dollars. They did it themselves.
If Bernanks Maniacal Monetizer team wanted QE this year, they screwed up....should have just let markets drop back to DOW 9,000 level and it would have been a piece of cake. Far as Im concerned their own arrogance ran their ship aground.
Makes me laugh to see fund managers and Wall Streeters begging and pleading for QE when stocks simply cant drop, and are almost back to all-time highs.
Ya gotta hate it when a plan blowz up in yer face! :>D
Those wascawwy wobotz!
Another perfect contrarian indicator, Barton Biggs today (Bloomberg TV) said he is 65% long and "terrified" of missing a rally and not being levered up long.
Biggs Cites "Strong Rally" Potential for Stocks“I’m terrified I’m not long enough if we’re going to have a strong rally here, which we could,” he said during an interview on Bloomberg Television’s “In the Loop” with Betty Liu today. Biggs said his net-long position in equities is 65 percent
http://www.bloomberg.com/news/2012-01-23/biggs-bets-on-stock-gains-citin...
No more complacent than assuming there are "investors" in the "market."
Target for DJI is roughly 14,000 by election day.
Maybe, maybe not. Why would I invest based on your hunch? Why would I throw good money into this market when I know the Fed or one of their affiliates pulled the plug on the market in 2008? Clearly they pulled the plug then to extort money from government. Market didn't even have to plunge at that rate but the banks were under water and someone wanted to make a statement.
None of this makes any good sense and I'm buying tangible assets all day and night long with the money that I'm earning. What else?
Dude, take a chill pill OK? He's just kidding!
Besides the point and I wasn't attacking him either.
No more complacent than assuming there are "investors" in the "market."
I was commenting on the concept that the market is being moved by things other than investors. My comment was serious. I expect to see the market back up around 14,000 by election day. For reasons that only have to do with the election. Propelled to that level by factors other than real investors. I was only suggesting where I think the market will end up by election day, and why. I don't think you should invest in the market based on what I said. But those with some spare change might gamble in the market, based on my thoughts.
Target for [DJI] S&P is roughly 14,000 by election day. TIFIFY
I am terrified too, but for the opposite reason of the always wrong Mr. Biggs. Low volume ramps are not to be trusted.
Yea its almost like its just all fake desperation pumping by the FED....I mean that is if we didnt KNOW better...of course all is well.
And someone is long BAC??????????
Doesnt take much at all to get the sheeple back contendedly chewing their green shoots not suspecting a thing.
Mutton...its whats for dinner pretty soon.
I want to be optimistic. I really do. I am most certainly not complacent. I actively would like to be one of those people that believe we are finally going to see this particular crisis pass, and get on with business. I'm really working on it, and trying to build some momentum in business activity. But it isn't happening. I need some positive reinforcement - some evidence of results for effort - to make me believe this thing is turning around. But all I get is this year harder than the last. Complacency? If I set my expectations low enough, maybe then I can be optimistic. How's this: I'm optimistic that this year will be awful at a less rapid rate than 2011.
The US Nat'l debt is going up to $16+Trillion, interest rates scraping the bottom at around 0%, what could possibly go wrong?
stop these doom article, that can only cause bears more pain.
Everyday ZH says the sky is falling but the market is jus keeping going high.
THANK GOD THERE ARE STILL SOME POSITIVE PEOPLE LEFT ON THIS PLANET.
(OUTRIGHT CYNICISM ABOVE)
YOU AND 98% OF THE POPULATION ARE LIKE FROGS TOSSED INTO A KETTLE OF COLD WATER WHICH IS SLOWLY HEATED UNTIL THE FROGS ARE COOKED ALIVE. A FROG TOSSED INTO HOT WATER WOULD JUST JUMP RIGHT OUT.