Bearish/Bullish Sentiment

I keep hearing people say that investors are too bearish, and that’s a floor on the market.

That’s a bit misleading — individual investors have been, for the most part, bearish and non-participatory. Thats to be expected post-crash. An entire generation of investors (about 10-15 years) can eschew equities for other asset classes, like commodities and real estate. We saw a similar event post 1929 crash.

But the pros are the one driving markets. Our internal measures have found they are a little on the bullish side, but not yet excessively so.

This recent CNBC survey does imply that, in general, fund managers and strategists are quite bullish.

"Stock Market:  80% of those surveyed see the Dow around 14,000 or higher at the end of the year. 72% see the S&P 500 around 1550 or higher at year end. In terms of geographic investment opportunities in 2007 – those surveyed  are most bullish on the US market for 2007 – the US & Japan in 2008. Liquidity is the strongest factor influencing the stock market right now. Rising interest rates and Congress (Taxes, other legislation) are viewed as the two biggest threats to the stock market’s rally."   

Its interesting that this group is the most bullish on US market for 2007, even though it has lagged (and is still lagging) for years. Although, its arguable exactly how bullish a 50 point Dow move is (heh).

What is so odd is that 79% say the Fed’s next move will be to cut interest rates — but at the same time 90% see U.S. GDP growth holding between 1-3% for balance of year.  Makes you wonder what exactly would be the the cause of these rate cuts.


CNBC’s Trillion Dollar Survey: Most See Stock Rally Continuing | 16 Jul 2007 | 03:12 PM ET

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What's been said:

Discussions found on the web:
  1. OkieLawyer commented on Jul 17

    The Fed’s policy is still to curb inflation; and that would indicate that a rate cut is not even plausible.

    Do these guys live in some fairy tale land?

    Oh. Wait.

  2. Amos Newcombe commented on Jul 17

    Our internal measures have found they are a little on the bullish side, but yet excessively so.

    This is a strangely-constructed sentence. Should there be a “not” in there someplace?

    BR: Oops! Good catch — I fixed it.

  3. ECONOMISTA NON GRATA commented on Jul 17


    The Fed has curbed inflation by redefining inflation… I am convinced that they have excesively over weighed manure as a component of PPI….



  4. Winston Munn commented on Jul 17

    “A one-off change in energy prices can translate into persistent inflation only if it leads to higher expected inflation and a consequent ‘wage-price spiral.'”

    There it is from the head of the money supply – Big Ben. Inflation is not a concern unless the proletariat demands higher wages. As long a beer and pretzel prices stay low and Paris supplies a nightly distraction, inflation will be contained.

  5. Fred commented on Jul 17

    I didn’t think you were a big fan of surveys Barry.

    What about the huge short positions, and trending put buying as a better color of sentiment?

    I still see the retail investor as apathetic. Perhaps they get involved late in the Fall.

  6. Gary commented on Jul 17

    Actually if the big money is bullish that would be good for the market. Their money is what drives markets higher. When the commitment of traders reports show an extreme long position its not a contrarian signal. It means exactly what it says, the big money is buying. As of last week the commercials have the largest net long position in history. I keep track of the COT reports on my blog for any who would like to follow the big money instead of trying to stand in front of the train. All these subprime excuses, etc., etc. just aren’t going to have any meaning as long as the smart money is buying. The last time they were selling was prior to Feb. 27th. Who knew?

  7. michael schumacher commented on Jul 17

    CNBC Survey?? Oh there’s a bastion of integrity. Buy, Buy, buy…….

    SO we have our weekly celebration of higher costs and our market is just so efficient it’s going to print us money to offset those costs…that do not exist.

    Seriously how long can the Indexes be pushed up before it starts to look fairly obvious?? oh yea sorry it totally is now.


  8. Fred commented on Jul 17

    I see said the blind man…

  9. semper fubar commented on Jul 17

    A little OT, but I thought this was funny:

    from AP:
    “Core inflation, which excludes volatile food and energy, rose by a higher than expected 0.3 percent in June although most of that increase reflected a jump in car prices. Without the increase in cars and light trucks, core inflation would have posted a much more moderate 0.1 percent rise.”

    Are we getting to the point where we’re going to report Core-inflation-ex-Core-inflation?

  10. michael schumacher commented on Jul 17


    for someone who still cannot answer a simple question about wages you are sure full of shit when it counts.


  11. Eddie commented on Jul 17

    This place needs an ‘ignore’ button, so that I can ignore MS’s posts. It’s always the same thing…

  12. michael schumacher commented on Jul 17

    truth hurts… run along and go play with Fred as blind buying with no thought of the macro picture needs company.


  13. Mark Young commented on Jul 17

    I’m seeing a good deal of pessimism among traders, still. These aren’t the “public” but rather quite sophisticated. Of course, this could be more short term.

    We poll registered users of, and the polling group is relatively consistent and the poll is not prone to abuse. We’ve seen a number of interesting (and inobvious) relationships between sentiment here and market action. One way I like to analyze this data is to take a 5-day SMA of the Fully Long Bull/Fully Short Bear ratio. We’ve got a relatively small number of fully long Bulls and a relatively large number of fully short Bears. Such persistent confidence is generally not rewarded.

    Below is a link to a chart I posted.

    If you have questions feel free to contact me.

  14. s0mebody commented on Jul 17

    To infinity, and beyond!

  15. The Financial Philosopher commented on Jul 17

    I’m certainly no trader or master of statistics but I do have some questions that may or may not have weight here:

    Don’t most investors see stocks as a discounting mechanism? If so, shouldn’t they be starting to look at what factors may pressure prices in 2008 by now? What about lurking “uncertainties” around the corner? Are those strictly a “long-term” investor’s concerns?

    Just a few examples of potential 2008 concerns potentially creating uncertainty or adding to the “wall of worry;” thereby pressuring stocks (or adding to a fall that my begin before 2008):

    The presidential election, which will be a complete regime change (no incumbents); the Iraq war will be in some form of dramatic transition; baby-boomers turning 62…

    What’s most concerning is that the herd seems to be accepting less return for the same or even higher risk. If the herd’s “perceived risk” is lower, would that not make “real risk” higher?

  16. Fred commented on Jul 17

    “Don’t most investors see stocks as a discounting mechanism? If so, shouldn’t they be starting to look at what factors may pressure prices in 2008 by now? What about lurking “uncertainties” around the corner? Are those strictly a “long-term” investor’s concerns?”

    Wouldn’t you think that these “uncertainties” have gotten alot of press already and are discounted? Can’t the market be telling you that these talked about issues are not going to whack the market? As Barry said, it will be something NOT on anyone’s radar (if it happens) that will cause a correction.

    As far as risk premiums, I urge you to read this report from the Chairman of Alliance Bernstein:

  17. econ101 commented on Jul 17

    hey why not….everything is looking good.

    July 17 (Bloomberg) — Prices paid to U.S. producers unexpectedly fell last month and industrial production rebounded, lending support to Federal Reserve Chairman Ben S. Bernanke’s handling of the economy on the eve of his semi-annual report to Congress.

    The 0.2 percent drop in wholesale prices followed a 0.9 percent increase in May and was led by declines in food and fuel costs, the Labor Department said today in Washington. Industrial output gained 0.5 percent, compared with a decline of 0.1 percent in May, the Fed said in a separate report.

    The figures add to evidence the economy is recovering from the slowest growth in four years without a surge in inflation that would require higher interest rates.

  18. paul commented on Jul 17

    No one in the financial press seemed to notice that our Homeland Security Director commented on a gut feeling about a terrorist attack in the U.S. this summer. Barry also didn’t mention it in his weekly review among the many links about a wall of worry and other posts on threats to the rally.

    I don’t think the market has priced this in. Maybe Homeland Security Director Chertoff has no cred, but his warning came after disrupted plots in London. But market rises strongly for the week. And today, the National Intelligence Estimate says the threat against the U.S. remains serious. But Dow passes 14,000.

  19. Philippe commented on Jul 17

    Frankly I find pathetic, guesses and attempts to comment markets (which are no markets since long, please see the abnormal profits of the banks worldwide on equities trading the latest of Merrill Lynch the previous of Morgan Stanley, CS BNP PARIBAS) see the distribution pattern of the equities markets, the only relevant subject is for insiders what is the « theoretical value of an equity market, what is the theoretical value of subprime bonds what is the theoretical value of LBO’s bonds? » I notice that no one is giving a theoretical value of the forward profits?

    but may be the equity culture and decision outcome are better reflected in this Bloomberg article.

    Stocks in U.S. Poised for 10 Percent Drop, Options Bets Show
    By Nick Baker and Michael Tsang
    Traders work in the S&P 500 futures pit
    July 16 (Bloomberg) — Bets in the options market against the Standard & Poor’s 500 Index have exceeded wagers it will rise by a 2-to-1 margin for a month, the longest since Bloomberg began compiling the data in 1995.

  20. Fred commented on Jul 17

    I saw that article and the basic premise is flawed. Massive put buying has proven over time (but not always)as a good CONTRARY indicator.

    More importantly drill down into the data…small speculators are short, and buying puts, while the Commercials (professionals) are record long. Who would you raher bet along side — the bookie or the gambler?

  21. Mark Young commented on Jul 17

    “What’s most concerning is that the herd seems to be accepting less return for the same or even higher risk. If the herd’s “perceived risk” is lower, would that not make “real risk” higher?”

    Why do you think you know what the “real risk” is better than the market?

    There are a lot of really smart guys out there deploying money. Sure, they sometimes get it wrong and they sometimes misprice things or get caught wrong footted. Still, why should anyone here think that they know the fundamentals and the FUTURE fundamentals better than the guys running billions?


  22. Estragon commented on Jul 17

    Mark Young,

    The risk for the guys running billions isn’t the same risk I’m concerned with. They need to outperform peers. If their peers lose 75% and they lose 74%, they win. If their peers gain 75% and they gain 74%, they lose. For them, the risk of consistent underperformance is the “real” risk, not the probability of a major loss.

  23. Kevin Rooney commented on Jul 17

    Following up on what Estragon wrote, perhaps there is a “no one ever got fired for” factor at work. Specifically, if a professional (Fred’s bookie) follows the herd and stays long now, even if the herd runs off the cliff, the professional won’t catch too much flak. But if he pulls out of the herd and starts missing the current run up the mountain, the pressure on him will be immediate and severe.
    Similarly, I wonder if the constraints on pension fund managers don’t bias them toward being long a bit more of the time than would be wise.

  24. The Financial Philosopher commented on Jul 17


    Thanks for the educational link! Perhaps the herd’s perception that risk is lower is justified, assuming that “real risk” is lower in historic terms (as the article in your link illustrates).

    Personally, I am a long-term investor with approximately 90% of my investment assets in stocks; however, I am still not convinced that the herd has priced in the potential “uncertainty” of the largely unclear 2008 election results and the effects of an Iraq re-deployment/draw-down/pullout or any other real threats to the market. While those type of geo-political events are not necessarily a direct impact on earnings, the size of the events alone are enough to shift the herd focus back to the fundamentals of the market, which they may find to be negative. I believe the herd is largely shrugging off any potential negative influences on the price of securities. They’re too busy looking at Dow 14,000 and feeling rosy from the “wealth effect.”

    Thanks again for the link…

  25. Woodshedder commented on Jul 17

    I have never seen so many people so angry about a market in rally mode.

    Geez, what will make you people satisfied?

    And finally, do you hate America?

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