Barron's Big Money Poll Bullish Consensus Reaches a Record High
This week's Barron's magazine contains the latest Barron's 'big money' poll. Evidently they interviewed a herd – there was once again near unanimity on a number of markets. The bullish consensus on US stocks clocked in at a new all time high for the Barron's poll with 74% of those surveyed declaring themselves 'bullish or very bullish on US stocks'. Only 7% are pessimistic. By contrast, only 45% were bullish in the spring of 1999 and 54% in the fall of 1999. One third of those taking part in the survey expect the DJIA to reach 16,000 points within about one year, 25% think it will go higher than that.
That is just for the US stock market, mind. Apparently there is a separate category asking about 'stocks in general', as well as about real estate. This has to be seen to be believed:
“Even so, the managers aren't just bullish on U.S. stocks, but on equities generally. Some call it the TINA trade, for "there is no alternative" to stocks in a slow-growth, ultra-low interest rate world. Eighty-six percent of poll respondents are bullish on stocks for the next 12 months, and a whopping 94% like what they see for the next five years. Real estate has similar approval ratings.
Nothing can go wrong! Maybe we should type that in all caps, so that it goes better with the “94% that like what they see for the next five years”. An appropriate cartoon accompanied this unabashed show of giddiness.
The 'big money' is up to its eyebrows in stocks and giddy like never before …
Not surprisingly, the bearish consensus on treasury bonds was once again the standout of the poll (for the umpteenth time in a row, bonds proved to be the most hated asset class by far) with 89% bearish on bonds and a full 92% declaring bonds 'overvalued'. Gold bulls can finally breathe a small sigh of relief: In October last year, 69% of money managers declared themselves bullish on gold, but this has now been cut down to just 35%, with 65% bearish and only 11% believing it will be the best performing asset class over the next year. Japan's stock market has found new converts – in October of last year, only 24% were bullish on Japan, right on the eve of the biggest rally since 2005. Now 62% are bullish on Japan, but only 13% think it will be the 'best performing market' over the next six to 12 months.
The details: 86% are bullish on stocks and real estate, only 11% are bullish on treasury bonds. Cash is the second most hated asset, gold is in third place, with 65% bears.
Our conclusion would be that it is probably best hold cash, treasury bonds and gold. Whenever this poll reveals extremes of opinion, it is usually a good time to look the other way.
US Stock Market Technical Conditions
We want to show a few charts briefly illustrating the technical backdrop to all this euphoria. Before we get to that, a few words regarding corporate earnings, which many survey participants cited as a major reason to remain bullish in what is, in John Hussman's words, a market suffering from “overvalued, overbought, overbullish” syndrome. In the third quarter of 2012, SPX earnings growth was actually negative; in the fourth quarter, a small gain was squeezed out. The first quarter of 2013 seems very likely to once again produce negative earnings growth. Of course many companies were still 'beating expectations' in the second half of 2012, as they jumped over the much lowered bar of continually declining earnings estimates. A significant number of prominent companies have no longer managed this feat in the current earnings season. Not even IBM, the world champion in 'earnings management', was able to beat expectations this time. This is no wonder, as there are what some consider 'depression-like conditions' in the euro area (for several countries that is certainly an apt description), where for example car sales have just fallen to a 20 year low, with severe declines recorded in a number of countries, including Germany with – 10% (Portugal: – 47.4%, France – 20.7%, Italy – 16.9%, etc.).
However, not only is the fundamental picture not as convincing as the bulls seem to think (in an example of the 'the market writing the news' to quote Bill Fleckenstein), but there are also a number of negative technical developments. We hasten to add that previous dubious technical developments have proven meaningless so far, but that is obviously not an immutable condition.
The SPX daily: RSI and MACD diverge from price for the second time in a row – click to enlarge.
The Russell 2000/SPX ratio – small cap stocks are underperforming- click to enlarge.
The NDX and the NDX-SPX ratio (black line): big cap tech stocks are underperforming the SPX, and most recently the NDX has peaked at a lower high versus a higher high in the SPX- click to enlarge.
The Barron's survey is not the only sentiment datum showing extreme bullish sentiment. Consider as an example the Hulbert Nasdaq sentiment index of stock market newsletter writers. Their recommended net long exposure was recently right back at a record high, which incidentally slightly exceeded the extreme seen at the March 2000 Nasdaq top.
Hulbert Nasdaq sentiment – just a few ticks off a record high- click to enlarge.
Since we have mentioned the Nikkei index above, it should be noted that its tendency to top out in March (which has quite a tradition) has been violated this year, as it is late April and it evidently still rising. However, the market continues to look severely overbought and ripe for a correction.
Obviously the BoJ's new 'pro inflation' mandate has helped inflate the Nikkei in anticipation, but that means ultimately that it is rising for the wrong reasons. It may also have merely lengthened the usual cycle (the rally did begin at the 'right' time). Still, from a practical perspective this means one has to continue to give the market the benefit of the doubt for now, especially if the peak of the current rally cycle continues to be pushed out further. As we have pointed out previously, that would be a change in character for this market.
Note however that a confluence of resistance levels is not too far from current levels. Moreover, there is a growing RSI-price divergence visible on the daily chart as well.
The Nikkei daily – a growing RSI-price divergence is in evidence- click to enlarge.
The Nikkei weekly – the red line indicates a strong level of lateral resistance. Note also that when the Nikkei became as overbought as currently on a weekly basis in the past, a sharp and swift correction soon ensued – click to enlarge.
Lastly, John Hussman also writes about the Barron's poll in his weekly missive, and has included the following chart as a reminder that magazine covers showing overconfident bulls in various stages of giddiness often represent a warning that the market is in dangerous territory. We should add that it isn't a bearish sign every time when Barron's features a bull on its cover. It is only remarkable in the current instance because of the poll results discussed above.
Via John Hussman: Barron's covers near significant caveat emptor moments in recent market history- click to enlarge.
To summarize all of the above: from a technical perspective it appears as though the recently begun short term correction is probably not yet over. The Barron's big money poll meanwhile suggests that there exists now significant medium to long term risk in the market.
With only 7% pessimists left, who is left to buy? One hope expressed by the fund managers interviewed was that the recent record inflows by individual investors into stock funds will continue and drive the market higher (in other words, they are in expectation of the arrival of greater fools). We believe this is a flawed theory, based on demographic considerations and the fact that many people have been worn out by the secular bear market's ups and downs. A market where performance and sentiment remain at odds with each other continues to be the US treasury bond market, which the 'big money' has hated with a passion for many years now. The pronounced bullish sentiment on gold that was still visible in late 2012 has been vaporized by the recent decline in the gold price. In our judgment, the 'big money' clearly suffers from what is known as 'recency bias'.
Charts and tables by: StockCharts, BigCharts, Sentimentrader, Barron's, John Hussman
We are happy to report that our funding target has been reached – once again, a hearty thank you to all contributors, your support is greatly appreciated!
As a result of us having gotten from A to B, the annoying graphic is hereby retired. However, be aware that the donations button continues to exist. It is actually perfectly legitimate to use it during the non-funding season as well; assorted advantages we have listed that often result from doing so are likewise persistent (i.e., increased happiness, children including you in their songs, potential obtaining of privileges in the hereafter, etc., etc.). Unfortunately we can't promise that it will make the gold price go up, but we're working on that.
Thank you for your support!
To donate Bitcoins, use this address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Most read in the last 20 days:
- Refugee Crisis Blowback
A Sharp Turn in Swedish Politics When we recently discussed Europe's refugee crisis, we mentioned that a sizable political backlash was to be expected and that unfortunately, extreme nationalist parties were likely to be among the main beneficiaries. We also mentioned the situation of Sweden, where the mainstream political parties in an ongoing fit of political correctness bordering on lunacy have apparently decided to transform Sweden into a province of Mesopotamia. Leader of...
- Tell us Ron, What's the Plan, What's the “Austrian” Plan?
What? No Austrian Prescription? Bloomberg Reporters Cannot Believe It This is truly funny. Ahead of the FOMC decision, Ron Paul, who is well-known as an an implacable critic and enemy of the Fed and a fan of the Austrian School of Economics, was interviewed at Bloomberg as to “what the Fed should do”. What makes it so funny is that the Bloomberg reporters seemingly cannot believe that Austrian economists simply have no “prescriptions” for the Fed. They keep pushing Ron Paul for...
- US Stock Market: A Retest or Worse?
Gray Swans and Black Swans By Monday's close, the S&P 500 Index was closing in on the low established in the August swoon – such a retest was essentially our minimum expectation, as V-shaped rebounds are very rare. The question is now whether it will only be a retest, or if something worse is in the offing. No-one knows for sure of course, but we'll briefly discuss what we are looking at in this context. Image via NYTimes It is interesting that as the market...
- The Baby Boomer Survival Guide (Part I)
The Yellow Machines Go Silent PARIS – What should you do if you are running out of time and money? This is the question we get from readers over 50… over 60… and sometimes over 70. We baby boomers were famously “na… na… na… live for today.” Now, it’s tomorrow. And many of us – often through no fault of our own – are having trouble making ends meet. At the Diary, we write about the world of money. About economic policy and how it affects you. But what if,...
- Climate Fanatics Run Into Public Relations Snag
Scientists Turn into Stalinists Last week, we happened to stumble across a press report about a group of climate scientists so eager to shut up their critics that they want to employ the State's police, courts and jailers for the purpose. Specifically, a group of academic (and presumably tenured) climate alarmists supporting the “CAWG” theory (CAWG=”catastrophic anthropogenic global warming”) have written a letter to president Obama, attorney-general Lynch and OSTP director...
- Swiss Parliament Shoots Down Socialist Utopia
No “Unconditional Basic Income” Similar to the minimum wage initiative pursued by Geneva-based socialists (which was rejected in a referendum - see “The Swiss Remain Sane” for details), another Utopian socialist dream has just floundered in Switzerland. As the European press reports, this time parliament has shot down a radical proposal forwarded by Socialist Party representative Andreas Gross. Photo via anti-kapitalismus.org Gross wanted the State to pay...
- The Baby Boomer Survival Guide (Part II)
A Lehman Moment for Commodities? LONDON – Today, we continue our philosophical look at what you should do if you are running out of time and money. (You can catch up on Part I here.) Where do we begin? With how to add wealth? Or how to lose it? The way to lose it is simple. You buy something that is not worth the money you paid for it. You are instantly poorer, whether you know it or not. The pleasingly plump. Illustration by jdeer69 DJIA, daily...