Alan Abelson in this weekend’s Barron’s:
“THE BULLS SEEMINGLY HAVE DEVELOPED an immunity to bad news. We’re admittedly jealous, since we’d love to glom onto the potion that makes everything, no matter how dire, come up smelling like a rose. It isn’t that we’re oblivious to good news; frankly, we hunger for it. Thus, when Bloomberg reports, citing data from Paychex, Intuit, Insperity and the National Federation of Independent Business, that small businesses, which have been down in the dumps forever, suddenly are energized by a surge of optimism and have started to actually hire people, we feel like emitting a discreet cheer.
But we somehow can’t blithely ignore disturbing bulletins out of Japan on the troubles besetting its effort to fix its damaged nuclear facilities. Or, the recurring financial woes in Europe. Or, closer to home, the mercurial rise in food and gas prices that threatens to effectively wipe out the bounty awarded the consumer via a temporary tax cut.
Nor can we turn a blind eye to less cosmic stuff like the decline in February durable-goods orders and, most notably, the drop in orders for nondefense capital goods excluding aircraft, which were off 1.3% versus an anticipated gain of 4.3%, a persuasive indication that businesses are still wary and keeping a tight grip on spending.
But our concerns about Wall Street’s pervasive bullishness go beyond the market’s lack of interest in, much less reaction to, unfavorable events, large and small. It’s also the not-unimportant matter of sentiment: pure and simple optimism among investment pros reigns supreme (apart from the usual scattering of cranky pessimists)—usually an early warning signal. In the latest Investors Intelligence survey, 50.6% of the advisors were bullish, a meager 22.4% bearish.”
Other factors Abelson cites: Margin debt is ballooning — $350 billion, equivalent to 2.2% of total market cap — one of the highest percentages ever. This last happened back in 2007 and 2008.
No Exit, No Entry
Barron’s March 26, 2011