Okay, my title is click bait

Before going on, this is not my title. It belongs to Randall Forsyth, Barron’s magazine’s “Heard on the Street” guru. It represents a photograph, an instant in time, of a constantly changing and shifting market. It is presented without context and it is designed to tap into our base instinct to focus on fearful information. Generally speaking going against the thrust of articles such as the one covered by this link is good investment policy. You need a Wall Street Journal or Barron’s subscription to view.

No question hyperbullishness is bad

It would be really bad if this hyper condition had gone on for a prolonged period, a la the tech bubble of the late 1990s. What we are seeing here has been going on for only a couple of weeks (since the first vaccine announcement from Pfizer (NYSE:PFE)). It is the final undoing of the panic we entered into in late February when the market had ‘abandoned all hope’, assumed Covid-19 was the end of the world… an infinite problem.

Well, it is not infinite and those stocks that languished during the past few months as the Covid/economically impervious big technology names held the field have played a little catch-up (since 11/9/20 – Russell 2000 +8%, S&P 500, dominated by big tech performance +1.4%). The Nasdaq composite was mostly flat during the period. We may be overextended in the short term but for most stocks we are certainly not in bubble territory.

The case for hyperbullish sentiment

Randall Forsyth

Forsyth cites a significant bump in investor sentiment.

“Investors Intelligence also found that 59.6% of advisors it polled in the latest week were bullish, up from 59.2% in the previous reading, while the percentage of bears fell to 18.2% from 19.4%. The spread between bulls and bears exceeded 40 percentage points, a level of exuberance that tends to be seen at market tops.”

Mind you over the past two years (I did not dig further as I assumed I would find a similar pattern), the preponderance of these advisors were and continue to be bearish. I remind you that this has been in a market that has been preponderantly bullish.

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Interestingly, and quite to the contrary, the public was more enthusiastic the week before. In the week ending November 20, according to the AAII, bullish sentiment, which has spiked to 55% in the previous week dropped 11.5% to 44.4%. More importantly the historical average bullish and bearish readings on this survey are 38% and 30.5% respectively. These current numbers are an aberration versus the previous month’s or even year’s results. Please check out this brief historical link (AAII historical data). Forsyth’s sentiment issue is a polaroid versus the big picture. WE ARE IN A SECULAR BULL MARKET.

Other issues cited in this tale of potential woe include the speculative resurgence of Bitcoin, the rocket shot of speculation known as Tesla (NASDAQ:TSLA) and a big jump in insider selling… not surprising considering the run-up in tech and, again, not reflective of the broad market.

Is there never a good time to buy?

The first Keynesian

Based on Forsyth’s posts the answer is “NO” even when stocks appear to be cheap. There is always that other shoe waiting to drop. Here is an example of an article published near the bottom, April 3, 2020: “The Bottom Isn’t in Yet for Stocks. A look at the last 800 Years of Economic Data Shows Why.” (you may need a subscription to view) The article goes through a bevy of examples, all ‘pre-Keynesian’, all irrelevant to today’s exercise of fiscal and monetary policy (half Keynesian-stimulate but never take back when the good times roll).

Bottom line: You need to be a discerning consumer even if you believe the source to be respectable. Opinions like this can be very harmful to your investment thought process.

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What is your take?

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.



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