The Bears Are Loose! Hide the Women and Children!

That's the impression one would get after taking a look at this week's Barron's cover, which is a stark contrast to the cover of October 15, which sported the DJIA's former all time high (14,165) in big numerals along with the words 'almost there'. The subtitle proclaimed that 'stocks are healthier today based  on profits and cash levels' than in 2007 when this level was last seen. Someone should perhaps tell them about 'multiple compression' and secular bear markets. 

So this was what Barron's deemed a title page-worthy decoration two weeks ago – the question was no longer if 'we' would break through the old highs, but when:

 


 

Barron's cover of October 15: when will the old high be exceeded?

 


 

We should perhaps point out here that since the old high is really not very far away in percentage terms, it may well be approached or even broken. After all, the DJIA made a new all time high on January 12, 1973 as well,  after suffering sharp declines in 1965-1966 and 1969–1970. Alan Greenspan, who at the time was with a private economic consulting firm, famously announced in the week before the top was made that “there is no reason to be anything but bullish”. Over the next two years the market was cut in half, with the bulk of the decline occurring in a free-fall move from a secondary high in November '73 to the ultimate low in December '74.

The point we wish to make here is not only Alan Greenspan is one of the worst stock market timers ever – it is actually that it is never easy to recognize when a major market advance or decline is about to end in real time. One can of course make educated guesses, but many technical analysts would probably have agreed with Greenspan at the time – after all, the market had just 'broken out'.

 


 

The DJIA actually held up slightly better in the 1973-1974 decline than the S&P 500, which fell from 121 to 60.

 


 

If the October 15 cover was apt to make bulls antsy, then this week's Barron's cover must have come as a great relief. The outsized influence of a tiny correction on sentiment?

 


 

A grizzly appears on the cover, after a less than 500 point drop in the DJIA.

 


 

The reason for a bear gracing this week's cover was the result of the Big Money Poll. Allegedly, fund managers have turned bearish on stocks. Let's see what the poll results actually looked like:

 


 

Perhaps we need new glasses, but 70% of fund managers were bullish on stocks. The one thing they are once again extremely bearish on are treasury bonds.

 


 

 

So here is the real news: when 70% of all fund managers polled are bullish on stocks, and a full 79% of them judge stocks to be 'fairly valued' or 'undervalued', Barron's thinks it is time to put a big bad bear on its cover!

Granted, there were even fewer bears in the last poll.

 

What They Love and What They Hate

So what can we conclude from the survey?

As difficult as it is to believe, the bull market in treasury bonds is apparently still safe and sound. The Barron's 'Big Money Poll' has proved to be an extremely reliable contrary indicator on the treasury bond market. The survey respondents absolutely hated treasury bonds in the April 2011 poll (the bearish consensus was at a record high of almost 90% at the time if memory serves). With a 84% bearish consensus on bonds this time around, the bull market in t-bonds  seems intact at least until the next poll rolls around.

 


 

The t-bond remains as unloved as ever. Never mind that has been outperforming stocks in just about any time frame that can be said to be of consequence to the average investor or fund manager. They still hate it.

 


 

Mind, we can think of far more worthy causes than lending money to governments, even those that are widely considered solvent. It is generally a better use of one's funds to invest in endeavors aimed at serving consumers. He who invests in government debt invests in the government's powers of coercion after all,  but that is not the question that concerns us here. We are merely commenting on a sentiment indicator and its likely implications for the market.

What else? We are a bit concerned that they are so bullish on gold. We'd have preferred to see a more reserved attitude, but one doesn't always get what one wants. It is a good bet though that if the poll had been taken in June or July, the result would have looked a lot different.

A 79% bullish consensus on real estate is quite stunning, and confirms to us that Ramsey probably had a good point when he recently wrote that it might be time to consider shorting the builders.

Other than that, it looks like our recently mentioned idea that China's stock market may be close to rallying (the article was fortuitously timed as it were, although the final word on that is perhaps not in yet) is supported by going solidly against the grain as well,  with 69% of the respondents bearish on Chinese stocks. Keep in mind here that China's stock market does not necessarily have much to do with its economy. In 2000-2005 the market went nowhere while the economy grew briskly, then suddenly experienced a bubble-like advance in 2006 -2008. There was no fundamental rhyme or reason discernible that could have explained this sequence of moves.

 


 

 

China's secondary casino (the primary casino is the housing market) –  the moves are largely mysterious and appear not to be in any way connected to economic fundamentals.

 

 


 

We do however have a few reasons for turning more constructive on China's stock market: it is cheap, it has declined a lot and is thus oversold, the decline from the high looks like a corrective wave that is either finished or almost so, and most importantly, sentiment is the exact opposite of what it was at the peak.

Lastly, we have a hunch that the new political leadership will do something to goose the market. Presumably it would prefer a rising stock market to a continuation of the real estate bubble. One must not underestimate the degree of control China's government has over where money flows (this is mainly so because it has complete control over the banks).

However, what we really love is that they hate Japanese stocks even more! As it were, we are busy writing an article on Japan that will be entitled 'Reconsidering Japan' and should be published sometime this week. There are quite a few reasons to believe that Japanese stocks will finally do the unexpected and come back to life.

Interestingly, someone  whose investment acumen we greatly respect agrees on all these points – and he is a gold bull as well. We are referring to Felix Zulauf, who has just declared himself bullish on Chinese and Japanese stocks as well as gold – as can be seen in this interview with – Barron's!

 


 

The Nikkei's long bear market. There are almost no believers left by now – so will this market finally wake up? We will soon have more to say about that.

 


 

Politics and Stocks

As an aside, we disagree with Felix Zulauf on one point –  in fact we disagree with the great bulk of money managers on this point. Namely the idea that it would be 'good for the stock market' if Mitt Romney were to win the presidential election – something a full 79% of fund managers polled by Barron's believe to be the case. Apparently they haven't noticed that Mr. Obama has presided over one of the biggest stock market rallies that has ever occurred during a single presidential term.

The main reason for this was of course the extremely loose monetary policy enacted by the Fed. If Mr. Romney wins, the Fed may turn a tad more timid. But even if that doesn't happen (next year's FOMC roster will be one of the most dovish imaginable, as both Eric Rosengren and Charles Evans will have a vote), the market will probably react with a bit of apprehension. There is also the matter of statistics: for some reason, the stock market has on average done much better under Democratic than Republican presidents. This may just be a coincidence, or maybe it has to do with leads and lags (see below), but it is an undeniable fact. The difference is glaring as it were:


The BGOV Barometer shows that, over the five decades since John F. Kennedy was inaugurated, $1,000 invested in a hypothetical fund that tracks the Standard & Poor’s 500 Index (SPX) only when Democrats are in the White House would have been worth $10,920 at the close of trading yesterday.

 

That’s more than nine times the dollar return an investor would have realized from following a similar strategy during Republican administrations. A $1,000 stake invested in a fund that followed the S&P 500 under Republican presidents, starting with Richard Nixon, would have grown to $2,087 on the day George W. Bush left office.


[…]


Some of the difference may stem from the fact that every Republican president since at least the end of World War II has faced a recession during his first term in office, Stovall said. Nine of 11 recessions that began since 1945 — and seven of eight since Kennedy ran for president in 1960 –started with Republicans in the Oval Office.”

 

It seems to us that long only fund mangers should not necessarily root for Mr. Romney.

 


Charts by: bigcharts, the chartstore, stockcharts, images (covers) by Dow Jones & Co.


 
 

Emigrate While You Can... Learn More

 
 

 

Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

4 Responses to “The Barron’s Big Money Poll”

  • Aka77:

    I am eager to read your article on Japan,as I think there are quite a few misconceptions about that country that have become “common knowledge” and are shared by even the most acute speculators(for example Hugh Hendry recently commented on the “paradox” of Japan being a wealthy society DESPITE the deflationary bust).Many of them of course have their roots in bad economic theory,but some of them are probably the result of huge cultural differences that are rarely accounted for.In any case I happen to be rather bullish on the yen in the next 12 to 18 months.I have not analyzed their stock market,but the fact that sooner or later the BoJ will have to engage in serious debt and deficit monetization has me thinking that a “crack-up boom” is likely to happen in the years to come.My only reservation is that we might need one more major crisis to force this course of action(hence my bullishness on the yen),so the stock market might experience one last meaningful drop(i.e. a retest of the lows made in 2008/2009).This could be avoided in case the large capital flows that are likely to enter the country(liquidation and repatriation of foreign investments by scared Japanese citizens)are immediatly invested in domestic stocks rather than parked in cash/JGBs:unlikely to happen in the midst of a crisis.
    Of course the best case scenario remains that of a massive default by the government,in which case I would rush to buy whatever I could,given that the public sector is,as always,the root cause of all problems.But this is just a wet dream of mine…

    • worldend666:

      In the case of a crack up boom, might the gains in the stock market not be cancelled out by a falling yen?

      • Aka77:

        I wasn’t using the term as precisely as Mises,but rather to convey the idea of a speculative frenzy induced by massive liquidity injections.The ultimate result is likely to be a weakening of the yen(maybe more against gold than other currencies),but remember that people always need some time(and quite a few excesses)to wake up to reality,as history clearly shows.The smartest participants in the Mississippi bubble walked away immensly rich.
        The crack-up boom per se takes place only at the end of the process and it is a quite dramatic event that unfolds rapidly.
        Of course it remains possible that a sudden epidemic of sanity takes hold of Japanese bureaucrats and they default on the debt,giving rise to a healty bull market.

  • worldend666:

    I remember seeing some cover of Forbes- I think in the early 1980s proclaiming it was all over for stocks. Of course it marked the beginning of one of the biggest bull markets in history.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • LA5H5981sc
President George W. Bush presents the Presidential Medal of Freedom to Federal Reserve Chairman Alan Greenspan, one of 14 recipients of the 2005 Presidential Medal of Freedom, awarded Wednesday, Nov. 9, 2005 in the East Room of the Whiite House.  White House photo by Shealah CraigheadAlan “Bubbles” Greenspan Returns to Gold
      Faking It   Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. — Alan Greenspan, 1961   He was in it for the power and the glory... Alan Greenspan gets presidential bling...
  • William SimonEnd of an Era: The Rise and Fall of the Petrodollar System
      The Transition   “The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.” Ron Paul   A new oil pipeline is built in the Saudi desert... this one is apparently destined for the Ghawar oil field, one of the oldest fields in Saudi Arabia...
  • Vote Early Zombie at Sharpstown High SchoolWriting on the Wall
      Time to Sell... Maybe BALTIMORE – Yesterday, the S&P 500 hit a new all-time high. And the Dow just hit a new record close as well. If you haven’t sold yet, dear reader, this may be one of the best times ever to do so.   It's still flying... sorta. Meet Bill Bonner's tattered crash flag Image credit: fmh   We welcome new readers with a simple insight: Markets are contrary, pernicious, and downright untrustworthy. Just when the mob begins to bawl most loudly...
  • robot tradersA Fully Automated Stock Market Blow-Off?
      Anecdotal Skepticism vs. Actual Data About one month ago we read that risk parity and volatility targeting funds had record exposure to US equities. It seems unlikely that this has changed – what is likely though is that the exposure of CTAs has in the meantime increased as well, as the recent breakout in the SPX and the Dow Jones Industrial Average to new highs should be delivering the required technical signals.  The bots keep buying... Illustration via...
  • Toscana_Siena3_tango7174The Central Planning Virus Mutates
      Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination.   A...
  • tokyo whaleDestination Mars
      Asset Price Levitation One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks.  If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical.  But, in certain economies, this is now standard operating procedure.   The “Tokyo Whale” Haruhiko Kuroda explains his asset purchase madness with a few neat little slides. Photo credit:...
  • The-Deep-State-Mike-LofgrenAmerica Has Become a “Parasitocracy”
      Dread and Denial So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to.   Eight years after achieving independence, a State modeled after the British merchant state was established in the US. It took a while for the Deep State to consolidate itself within it, a process that was accelerated greatly in the run-up to and aftermath of WW I. Illustration by Ana...
  • London-City-Scene lo rezFat People for Trump!
      Alphas and Epsilons BALTIMORE – One of the delights of being an American is that it is so easy to feel superior to your fellow countrymen. All you have to do is stand up straight and smile. Or if you really need an ego boost, just go to a local supermarket. Better yet, go to a supermarket with a Trump poster in the parking lot.   The protest vote attractor with the funny hair. Image credit: Liberty Maniacs   Trigger warning: In the following ramble, we make fun of...
  • bristlecone-1000x672Long Term Market Perspectives
      Methuselah Tree When looking for a good theme for this post I pondered for a while and then decided to use a picture of a bristlecone pine, which are widely considered to be the oldest living trees in the world.   Ye olde bristlecone Photo credit: Kosta Konstantinidis   You can find them near the Nevada/California border and if you wind up traveling in the area then I strongly recommend that head over to Bishop and from there head up high up into the White...
  • Juncker, Keqiang, Tusk 2EU Sends Obsolete Industries Mission to China
      “Tough Negotiations” The European press informs us that a delegation of EU Commission minions, including Mr. JC Juncker (who according to a euphemistically worded description by one of his critics at the Commission “seems often befuddled and tired, not really quite present”)  and European Council president Donald Tusk, has made landfall in Beijing. Their mission was to berate prime minister Li Keqiang over alleged “steel dumping” by China and get him to cease and...
  • chart-4-silver-basis and cobasisGold is not Going to $10,000
      One Cannot Trade Based on the Endgame The prices of the  metals were down again this week, -$15 in gold and more substantially -$0.57 in silver. Stories continued to circulate this week, hitting even the mainstream media. Apparently gold is going to be priced at $10,000. Jump on the bandwagon now, while it’s still cheap and a bargain at a mere $1,322!   All aboard... or maybe not? It all depends on what one wants to achieve – there's many a slip 'twixt the cup and the...
  • Purchasing Power of the BuckThe Real Reason the “Rich Get Richer”
      Time the Taskmaster DUBLIN – “Today’s money,” says economist George Gilder, “tries to cheat time. And you can’t do that.” It may not cheat time, but it cheats far easier marks – consumers, investors, and entrepreneurs.   Tempus fugit – every action humans undertake has to take time into account. In the economy, interest rates serve as the signal and regulator of the inter-temporal structure of capital. In an unhampered free market economy, they tell...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com