Uh-Oh: Front Page WSJ “Why Market Optimists Say This Bull Has Legs”

Today’s WSJ has a very bullish, front page article on the current Bull market lasting another decade or so. In the past, that has operated as a bit of a warning sign that an intermediate top was nearing.

We noted the last such article in May 2006: Behind Surging Stock Market: Old-Fashioned Economic Boom" –- that led to a rather sharp decline over the next few weeks.

This doesn’t mean the penultimate top is here; It only points to the fact that the WSJ editors have decided to move a Money & Investing column to page A1. Like any other publication, this implies that they are trying to capture some of the current zeitgeist, which is obviously enthusiastic for stocks. 


A decadelong bull market is supposed to be a
once-in-a-generation rarity: There was one in the 1920s, another in the
1950s and a third in the 1990s. Historically, most bull markets have
run their course in three or four years. That means, recent
stock-market highs notwithstanding, the current one should be on its
last legs.

But just seven years after the great bull market of
the 1990s thudded to a halt, a small group of seasoned investors —
including some with no vested interest in selling stock — believe the
U.S. market is in the midst of another long period of gains.

This group of extreme optimists believes that global
economic strength will keep shares rising for much longer than has been
common in previous eras. Not only China and India, but also Japan,
Western Europe, Latin America and other parts of Asia are feeding on
one another.

Such sentiments give traditionalist investors the
shivers, because they can signal that excess is percolating back into
the market. Many cite Yale economist Irving Fisher, who shortly before
the 1929 crash famously said, "Stock prices have reached what looks
like a permanently high plateau."

Identifying precisely when enthusiasm shifts to froth and froth turns into rampant speculative excess  is an imprecise guessing game. So far, with Sentiment measures in the middle of their ranges, it does not look like we are in the last stage major of a blow off. It is not until the sentiment measures move to wild extremes, that we can more confidently smell the end game.

As I noted on CNBC Monday, despite the bull run here, US stocks continue to underperform overseas bourses. The chart in today’s WSJ shows just how much:



Why Market Optimists Say This Bull Has Legs   
They See Decade of Gain Fed by Global Growth; Skeptics Cite Big Doubts
WSJ, May 23, 2007; Page A1

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What's been said:

Discussions found on the web:
  1. Chief Tomahawk commented on May 23

    Intermediate top? Is sell in May & go away perfect timing???

  2. Jim commented on May 23

    This market could keep on going. When the Dow as 6600, Greenspan and others were claiming we were in a bubble. 5000 points later we were.

    Hedgefunds and shorts could add more fuel to this rally. It is not unreasonable to see the NAZ break 3000 by August. Dow 15000.

  3. EricP commented on May 23

    During my falling asleep on the couch because the Spurs were up big and the Mets had already been blown out by the Braves phase, my remote moved to Mad Money. Here the Creator of Buying the Top was frothing away on the “cheapness of the Dow” and the next 1000 points of rally. Now, not to see this is something not done every night on this show, but I felt a little more sense of missing the boat. To say that Citi may be broken up to create shareholder value might have top ticked the Private Equity boom. Does the market really think that every company will be taken private at a 20% premium?

  4. DealBreaker.com commented on May 23

    Opening Bell: 5.23.07

    Alcan: Alcoa takeover bid is inadequate (AP) Canadian aluminum firm Alcan has rejected Alcoa’s takeover bid, calling the offer inadequate. However, this hardly means that it’s a done deal. Either Alcoa will come back with a “sweetened” deal, or a…

  5. JohnnyB commented on May 23

    I love it. There are two extreme camps today. On one side are the Bull Neo-cons run big big brokerage, JJC and Art Laffer and co. The other side you have the Bear Market Leftists run by Grantham, Faber and Panzer.

    This should be a formidable match. One camp has all the money and the ears of main stream media. The other camp is listened to by a small swatch of intelligent but nerdy investors that hang out in the wild vast frontier of blog land.

    If this were a WWF match the bull neocons would pummel lefty market until someone in the crowd handed lefty a broken credit derivatice to swing around.

    Does anybody play the middle anymore I wonder?

  6. Fred commented on May 23

    “After the close today, the New York Stock Exchange released short interest levels for the month of May, and as the chart below shows, short interest surged by 7% to a new all time high. While the record level of short interest is not a new story, this month was somewhat unique in that it was the tenth largest monthly increase in short interest over the last 16 years.” (cont)


  7. anon commented on May 23

    The middle bought real estate.

  8. Strasser commented on May 23

    I know that in this market all news is good news, but in this case cannot see a positive spin!? A headline likely not to be discussed, but one which I think is worth reading: http://www.msnbc.msn.com/id/18812865/

  9. super-anon commented on May 23

    Vernon Smith, a Nobel laureate economist, is so bullish on stocks that he’s put money in small drug companies — investments he “wouldn’t have touched in the late 1990s,” he says. Louise Yamada, a longtime Wall Street market analyst, sees the Dow Jones Industrial Average climbing to 16000 as part of a bull market that she compares with the post-World War II boom. Fritz Meyer, who develops investment strategy for AIM Investments, a $149 billion money-management group in Houston, sees stock gains stretching as far as the eye can see.

    BREAKING NEWS: Stock salesmen say stock prices going up!!!

  10. Patu commented on May 23

    have you ever felt like you are standing on the railroad station platform and no one else is there and you have this sinking feeling like you just missed the train and the next one coming along isn’t for a very long time and the only thing that you have to read is the WSJ with headlines that scream “New Market Highs in all the Indices”?

  11. Gary commented on May 23

    Folks as long as the big money is buying this market is going up. The COT report has one of the most bullish positions in the last 4 years. Go to http://garyscommonsense.blogspot.com/ if you would like a little history on the COT report.

  12. wunsacon commented on May 23

    Doesn’t Wall Street need Main Street to come in and buy WS’s shares? (Does that always happen at long-term tops?) How long does it take for that psychology to set in (or is it already here)? I suspect we haven’t roped in enough people or Chinese banks just yet.

    JohnnyB, pretty funny!

  13. Fred commented on May 23

    As a balance to the high short interest, the “index only” put call was very high yesterday…which is actually bearish (smart money).

    I’m considering adding to hedges.

    Steel cage match!

  14. Fred commented on May 23

    Wunsacon…all my friends in retail brokerage say the individual investor is no where near this market. They are apathetic, and perhaps trying to liquidate speculative real estate. I expect a robust showing from them later next year…AT MUCH HIGHER PRICES!

  15. TexasHippie commented on May 23

    JohnnyB, I love it!

    So if the bulls are the meaty bruisers in the ring, will they be tempted to pummel the shorts with a surprise spike in volume and long interest to force a short squeeze? Seems like a surprise turn against the “Sell in May” pattern could be an attempt to spook the shorts. Any thoughts?

  16. Greg0658 commented on May 23

    JohnnyB 1 correction – “one camp has all the >money< and the ears of MSM" money = kinda sorta money because its only numbers in an account that must trade via computers on some day in the future to become real money

  17. Kevin Rooney commented on May 23

    May not be extremes of sentiment here, but it sure sounds like it is in China.
    And the February-March drop suggests that a bubble popping in Shanghai would be felt around the world.

  18. Shrek commented on May 23

    The EM markets are the key for everything. Everyone knows growth is crap and the US market is vulnerable. MA will disappear in an instant when those markets roll over. Expectations for EM growth are way to high for the results coming out about the US consumer.

  19. Iqbal Latif commented on Jun 5

    This is only half way of the Bull Run.

    Nasdaq has not even participated, it is well below the year 2000 delusional highs. S&P broad based rally has helped S&P break a new high in an environment where overall P/E ratio is at low of 18 in spite of year on year productivity gains of 2.5%
    Most of the DOW stocks have quite a room to go up, HPQ is just rising from the slumber, C, CAT, XOM and KO the quintessential part of any global portfolio have a lot more opportunity to move up. If lagging Nasdaq catches up with the S&P breakout and DOW stocks with a room to move break out, we will see the present levels as a platform for a good juncture for a grand rally.
    The debt markets finally have started pricing the non inflationary growth scenario, instead of recessionary scenario where the conundrum of inverted yield curve was disturbing many a gurus,, the rising yields and upward movement of the long end and lowering of the of the front end of the yield curve that makes it a more normal looking yield curve signaling a customary growth economy i.e. non inflationary in nature is not yet priced by the equity markets. This beginning of the correction of the shape of the yield curve in next stage will lead to parallel drop of the entire yield curve as non inflationary nature of the economy notion settles and is priced in the markets. I see a kind of bull market that will move forward based on year 2000 bull call by GS’s Abby Cohen co-relations between dividend yields and long bond yields.
    In 1990’s Sir Greenspan use to worry about unique status of US as an oasis of stability within the global economy facing every day turmoil’s, in the bull run of year 2000 billion’s living in absolute poverty in today’s emerging Bric’s were not consumers or savers today they are both. Chinese trillion plus forex exchange reserves alongside India’s new prosperity and yester year Russian bankrupt state replaced by a nation that has 400 billion $’s of reserves have created a new demand, these new billionaires on the block have created new demand of infrastructure hence Cat and FWLT are so much in demand, these new consumers will create demand on a level that will eclipse baby boomer spending. Rising consumerism in the world is ascendancy of capitalism US markets the ultimate sanctuary of global liquid funds and savings as a world leader in R&D will benefit the most.

    New oasis of stabilities have been created by new level of consumerism and a new level of prosperity, the huge increase in global money supply is matched by increase in the productivity and low cost manufacturing, when China gulps energy it manufactures not only for its own populace but for the entire world, per capita consumption of Chinese energy has actually to distributed to the entire spectrum that benefits from Chinese products. It has becomes the low cost exporter of goods that help stems the glut of paper money. Indian brains and Russian and Brazilian capacity increase in commodities have helped the low inflation to continue despite of massive increase in money supply, previously any such increases like we saw in Weimer republic were hugely inflationary, now money supply is matched by production increases in which billions are partaking the benefits. The increase in inflation of tangible asset class has seen a massive growth; a classic example of huge amount of paper money following prime assets, the recent increase in take over and mergers of private and listed companies is rather a fulfillment of huge appetite of private equity to place their paper money to work.

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