The Speculative Sap is Rising

Barron’s Alan Abelson notes that the speculative juices are running hot:

"IT ISN’T EVEN SPRING, yet the speculative sap is rising and we can espy, of all things in January, tulips starting to bloom.

The stock market not only shook off the previous week’s ugly bout of the shakes, but bounded smartly ahead. Even doubting Thomases like ourselves couldn’t help but be impressed by the plurality of advancing over declining stocks (known among the cognoscenti as "breadth") and the outsized number of stocks setting new highs versus those setting new lows.

But most striking was the garish speculative cast to the trading. Dogs that we had thought safely confined in their kennels were running loose with eager investors (or whatever) in wild pursuit. Our old friend Taser International (ticker: TASR) is a frothy for instance. The rousing reception that greeted the IPO of Chipotle (CMG), McDonald’s Mexican food entry — the stock doubled in its first day of trading — was still another sign of aroused animal spirits. And so in its way is the mad passion for Google (GOOG), price be damned.

Sentiment readings, moreover, also display a vigorous enthusiasm. Although a tad more subdued after the recent selloff, the Consensus Index and Market Vane tallies, both of which tend to track the attitudes of the gamier pros (those who dabble in futures and that sort of thing), remain conspicuously bullish (72% in the former’s survey, 68% in the latter’s), while Investors Intelligence’s canvass of investment advisers shows more than twice as many bulls as bears. And that most telling barometer of speculation, margin debt, has been mounting steadily, topping $220 billion in December, the highest level of on-the-cuff stock buying since the giddy days of 2000.

In this increasingly caloric investment climate, good news is seized on as sufficient reason for piling into the market; bad news is typically ignored, excused away or rationalized as favorable because supposedly it’ll quicken the day the Fed relents and stops raising interest rates. The response to even so horrific a sight as an incredibly shrinking Detroit is pretty much a yawn.

All of which smacks of another round of irrational exuberance, the 2006 version. For the prudent investor — and we assume a few are still extant — the conundrum is that bucking a trend can be like lying down in front of a steamroller and taking the plunge can be like diving into an empty pool. An excellent time, we’d say, to turn coward and watch the fun and games from that nice cushy vantage point several rows back from the playing field.

Not quite "Katie Bar the Door," but working  its way in that direction.


Barron’s MONDAY, JANUARY 30, 2006

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  1. Emmanuel commented on Jan 28

    The easily misled ones…what the heck are they thinking? Is Q4 2005 GDP growth at 1.1% a “buy” signal now? This is Kudlow logic at its finest.

    If these folks quit drinking CNBC’s Kool-Aid, they’d go over instead to the Econbrowser for a real fix on why things are bound to get worse as imports soar. Much worse.

  2. Larry Nusbaum, Scottsdale commented on Jan 28

    “And that most telling barometer of speculation, margin debt, has been mounting steadily, topping $220 billion in December, the highest level of on-the-cuff stock buying since the giddy days of 2000.”

    OMG, NOT GOOD. Also, heard the results of a recent poll in which investors believe stocks will outpace other investments in 2006. NOT GOOD (hope they mean oil and precious metal stocks)

  3. todd commented on Jan 28

    I hope you oil people are treading lightly… inventories are WAY up over last year!

  4. Tom, Seattle commented on Jan 28

    I agree with Larry. Oil in the shor term- March 2006 and into 2007- will drop like a rock.

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