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
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
Most read in the last 20 days:
- A Historic Rally in Gold Stocks – and Most Investors Missed It
Buy Low, Sell High? It is an old truism and everybody has surely heard it more than once. If you want to make money in the stock market, you're supposed to buy low and sell high. Simple, right? Successful stock market investing in two simple steps Photo via slideshare.net As Bill Bonner once related, this is how a stock market advisor in Germany explained the process to him: Thirty years ago, at an investment conference, there was a scalawag analyst...
- Gold Stocks Break Out
No Correction Yet Late last week the HUI Index broke out to new highs for the move, and so did the XAU (albeit barely, so it did not really confirm the HUI's breakout as of Friday). Given that gold itself has not yet broken out to a new high for the move, it would normally be expected to do so, as Jordan Roy-Byrne argues here. Photo via Museo del Oro / Bogota The chart below shows the situation as of Friday (HUI, HUI-gold ratio and gold): The HUI and...
- Why is the Stock Market so Strong?
Dismal Earnings, Extreme Valuations The current earnings season hasn't been very good so far. Companies continue to “beat expectations” of course, but this is just a silly game. The stock market's valuation is already between the highest and third highest in history depending on how it is measured. Photo credit: Kjetil Ree Corporate earnings are clearly weakening, and yet, the market keeps climbing. The rally is a bit of a “all of worry” type of...
- Weekly Resistance Levels in the HUI
Options Expiration Ante Portas - Just as a Resistance Level is Reached After we had penned our little missive on the breakout in gold stocks on Monday, it dawned on us that an options expiration takes place this week. Normally, gold stocks decline into the expiration date. Don't hold us to this, but the last time we remember call writers being forced to delta-hedge their way out of trouble in gold and silver stocks right at the end of an expiration week was sometime in 2006. Given...
- Cultural Marxism and the Birth of Modern Thought-Crime
What the Establishment Wants, the Establishment Gets If a person has no philosophical thoughts, certain questions will never cross his mind. As a young man, there were many issues and ideas that never concerned me as they do today. There is one question, however, which has intrigued me for the longest time, and it still fascinates me as intensely as it did back then: Does spirit precede matter or is it the other way around? In other words, does human consciousness create what we...
- China – A Reversal of Urbanization?
Economic and Demographic Changes We have discussed China's debt and malinvestment problems in these pages extensively in the past (most recently we have looked at various efforts to keep the yuan propped up). In a way, China is like the proverbial “watched pot” that never boils though. Its problems are all well known, and we have little doubt that they will increasingly find expression. China's credit bubble is one of the many dangers hanging over the global economy's head, so to...
- State of Fear - Corruption in High Places
Mr. X and his Mysterious Benefactors As the Australian Broadcasting Corporation (ABC) reports, a money-laundering alarm was triggered at AmBank in Malaysia, a bank part-owned by one of Australia's “big four” banks, ANZ. What had triggered the alarm? Money had poured into the personal account of one of the bank's customers, a certain Mr. X, in truly staggering amounts. A recent photograph of Mr. X. Photo credit; Peter Foley / Bloomberg via Getty...
- Why All Central Planning Is Doomed to Fail
Positivist Delusions [ed. note: this article was originally published on March 5 2013 – Bill Bonner was on his way to his ranch in Argentina, so here is a classic from the archives] We’re still thinking about how so many smart people came to believe things that aren’t true. Krugman, Stiglitz, Friedman, Summers, Bernanke, Yellen – all seem to have a simpleton’s view of how the world works. A bunch of famous people with a simpleton view of how the...
- Gold and Negative Interest Rates
The Inflation Illusion We hear more and more talk about the possibility of imposing negative interest rates in the US. In a recent article former Fed chairman Ben Bernanke asks what tools the Fed has left to support the economy and inter alia discusses the use of negative rates. We first have to define what we mean by negative interest rates. For nominal rates it’s simple. When the interest rate charged goes negative we have negative nominal rates. To get the real rate of...
- US Economy – Ongoing Distortions
Business under Pressure A recent post by Mish points to the fact that many of the business-related data that have been released in recent months continue to point to growing weakness in many parts of the business sector. We show a few charts illustrating the situation below: A long term chart of total business sales. The recent decline seems congruent with a recession, but many other indicators are not yet confirming a recession - click to enlarge. Wholesale...
- Russian Aggression Unmasked (Sort Of)
Provocative Fighter Jocks Back in 2014, a Russian jet made headlines when it passed several times close to the USS Donald Cook in the Black Sea. As CBS reported at the time: “A Pentagon spokesperson told CBS Radio that a Russian SU-24 fighter jet made several low altitude, close passes in the vicinity of the USS Donald Cook in international waters of the western Black Sea on April 12. While the jet did not overfly the deck, Col. Steve Warren called the action "provocative and...
- Argentina – The Times, They Are A-Changing
Our Argentine “Ranch Rebellion” Is Over… for Now… BUENOS AIRES, Argentina – Not much action on Wall Street yesterday. The Dow sold off slightly. Gold and oil were up a bit. How about here in Argentina? “Everything has changed. Everything.” Mauricio Macri shortly after his election – indicating that he actually has a plan. Photo credit: Enrique Marcarian / Reuters One of the analysts in our Buenos Aires office explained how the recent...