Risk is reaching extreme levels
Dow’s inching toward 10000 and everyone’s convinced it’ll cross that psychological level sooner rather than later.
The bullish sentiment in the market is pretty remarkable, but at the same time, very scary. These panic levels, albeit a different kind of panic, are eerily similar to late February and early March, when panic selling brought the market to multi-year lows. Just like six months ago when it seemed like stocks would never rise again, there’s a similar sense now that nothing can push stocks down.
Of course that dangerous thinking usually marks the sign of a top or bottom. And right now, with bullish sentiment reaching scary highs and economic fundamentals still relatively weak, many market observers are questioning how much higher the market can go in the short term.
“There is a near panic ‘have to get in’ attitude among retail investors,” says Mike “Mish” Shedlock, an investment advisor for SitkaPacfic Capital Management. And while retail investors and fund managers are chasing the rally, corporate insiders keep selling their shares – usually not a good sign.
“Risk is not high, it is extreme,” he adds.
It’s still hard to fathom the Dow’s flirting with 10000, considering the consumer’s deleveraging, jobs are disappearing and home values are plummeting, notes former labor secretary Robert Reich. But putting fundamentals aside for a second, the explanation for the rising stock market is relatively simple.
“The great consumer retreat from the market is being offset by government’s advance into the market,” he says. Government spending is curing all wounds, at least in the stock market’s eyes. But a big problem is all this government expansion isn’t doing much to help the average American.
“Trickle-down economics didn’t work when the supply-siders were in charge,” Reich notes. “And it’s not working now, at a time when — despite all their cries of ‘socialism’ — big business and Wall Street are more politically potent than ever.”
Determining where the market goes from here is, of course, anyone’s guess. The notoriously bearish RBS chief strategist Bob Janjuah says he expects the current rally to end “over the next month or so,” and then sees bears returning with vengeance. He predicts S&P 500 to plunge through its previously lows and actually fall to 550.
Bold call, especially considering S&P 500 was recently up 8 at 1072.
“I have yet to see any meaningful evidence of self-sustaining private sector demand,” which is the only way to achieve sustainable economic recovery, says Janjuah (according to FT Alphaville). “All I see is growth and asset price gains driven by the willing and reckless destruction of government and central bank balance sheets.”
If this destruction doesn’t matter anymore, “I will have to accept that the policy of ‘print/borrow/spend on rubbish we don’t need’ is a limitless phenomena, without consequences, which means there should never be a bear market ever again,” Janjuah writes.
“I hope this sounds as ridiculous to you reading as it did to me when writing.”
Dow’s up 54 at 9833.
September 24, 2009
Yo, Mish, where’s the support for “there is a near panic ‘have to get in’ attitude among retail investors”?
There’s been no headlong rush for equity mutual funds–Domestic Equity category has shown outflows for last five weeks. In fact, it looks like retail investor money has gone into BOND funds–admittedly, though, corporate bonds.
AAII survey, the one that reports asset allocation, not opinion, shows equity allocation is up, but well off heady levels. As to AAII sentiment–notoriously fickle, of course–bulls have had a hard time comprising more than 50% of respondents.
If there’s a got-to-get-in mentality anywhere, it’s among the institutional types where surveys like Merrill Lynch’s Global Money Manager survey show cash levels back to late 2007 levels.