Barron’s Panic Euphoria Model

We have previously looked at the Smith Barney  Panic / Euphoria gauge that runs in Barron’s each week, wondering about its make up. A commenter asked earlier today about this, so I pulled an old chart along with the latest version.

What was the basis of the supposed deep panic in May 2005:

May 15 2005


Here we are in May 2008, and we are now racing thru neutral and heading towards Euporhia.

April 28, 2008


Any thoughts on this?  What say ye?

The Storm Before the Rally? (May  2005)

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What's been said:

Discussions found on the web:
  1. Owner Earnings commented on May 1

    Non Farm Payrolls Decline of 130,000 will change that.

  2. Tony commented on May 1

    I look at a few things like rsi(5) of the vix. Also vix/vxv levels. It seems uncomfortably obvious that the market will sell off hard.

  3. Steve Barry commented on May 1

    As a closet technician, I always looked at this when it was printed in Barrons…now I will check it online. This is as high as I have ever seen it. I have always thought they should lower the euphoria and panic levels, as we always seemed to be much closer to panic. I remember reading what goes in there once…it is a Tobias Levkovich hodge podge of indicators like put/calls, sentiment surveys, NYSE member shorts, etc. As short as I am, I’m glad to see it where it is.

  4. shrek commented on May 1

    Not surprising. The fed and government seems hell bent on sustaining the unsustainable. Of course were going to eventually have a situation worse than last august and then we wont be able to deny how messed up this whole situation is.

  5. Steve Barry commented on May 1

    BTW, I don’t think it appears in the print version of Barrons every week like it used to…they sometimes now stick it in the Market Lab section.

  6. Steve Barry commented on May 1


    yes…when a bank so big that even the Fed can’t get someone to help bail it out has a problem, lets see what the market does.

    As for NFP, of the 5 Million jobs supposedly created from 2003-2007, 40% were real estate related I have read. With my thinking, if we just return to a “good” RE market, those 2 Million jobs are no longer needed…they are for bubble times only.

  7. Alfred commented on May 1

    In 2005 the Fed was in the middle of a tightening campaign and today real interest rates are negative. Investment banks are accessing the Fed’s discount window to the tune of 17bn USD and can post mortgage bonds as collateral. M3 money is growing at a 20pc yoy rate. The list goes on and on. How can there be no euphoria in the market?
    Oh, I almost forgot, government statistics are Hollywood material.

  8. sinic commented on May 1

    This will be the first recession that the markets fly through euphorically.

  9. Steven commented on May 1

    Is that a quantitative analysis gauge created by mathematicians and engineers?

    I trust that gauge about as much as I trust CDO’s.

  10. ferd mertz commented on May 1

    i think the greatest panic for today’s hot money hotshits is that of MISSING A RALLY!

  11. John Borchers commented on May 1

    I wonder if that same model showed similar in 2002 (for current model).

    If you look at the charts between peak 2000 and now they look very similar so I’m not surprised we are up 10% from the recent bottom.

    All the shorts have given up, even short funds like Gartman are long. That certainly signals euphoria on the long side.

  12. Ken H. commented on May 1

    Exactly Steve,

    From realtors, to appraisers, to brokers, to home depot employees, to boat salesman, car sales, and on,…and on,…and on. Oh ya, we are headed to euphoria all right. Housing ATM is so over!

    I really do get a good belly laugh when analysts spin how cheap some stocks are.

    I think we are still in a denial stage.

  13. Cris commented on May 1

    There are 2 factors in play here. The first is the psychology of 40 year olds who trade and manage money whom have never been through a real recession (only buying opportunities caused by pullbacks). They have decided that a $3.3 billion loss by GM is a prelude to “abundance.”

    The second factor is the mutual and hedge managers who care not how money is made as long as the market moves. Therefore, they will be standing on the sidelines waving bye-bye if and when the economics get “so bad” that the 40 year olds are wrong.

    Don’t expect “data” to stand in the way of trading from either. Expect a psychology lesson of herd mentality as both search for the best way to capitalize. In the meantime, remember, the “wall of optomism” is scaled by the bears as slowly as the wall of worry is by the bulls.

  14. John Borchers commented on May 1

    But remember of course one of the major short rules:

    “The Market Can Stay Irrational Longer Than You Can Stay Solvent”

    This is why we had this ralley as all in shorts lost tons of money really quick betting on the ‘sure thing’. It will reverse as everyone does the same thing just on the opposite side.

  15. MJ commented on May 1

    Although I am mid-term bearish (12-18 months) based on all the economic data, I am long-term bullish. Am I missing something that the stock market just glazes over all bad news?

    The market is factionally down from its all-time highs yet the reason the market was cooking for so long (easy access to credit) has virtually seized for more than 9 months. Easy credit is not going to just come roaring back, if ever. Is this crazy rally just a “I cannot afford to miss any rally rally?”

  16. jj commented on May 1

    May of 2005 was the GM and F downgrades to junk by S&P , followed by Bailey Coates and Marin Capital and other convert-arb hedgies closing down

    CDS’s jammed by 150bps , at the time a huge move

  17. Marcus Aurelius commented on May 1

    Had it topped out at 0, the most recent chart would signify the mania phase of our econ cycle. In this particular case, the spike indicates insanity.

  18. Nihilism commented on May 1

    I am getting bouts of manic depression now that I have seen this indicator — Citigroup Market Panic/Euphoria model actually showing “euphoria$!” in current state of the economy.

    I guess the model artist/creator realized that his job as a market strategist at Citi is safe now that the firm has sold stock to investors at $25 or lower; and sold their preferreds yielding 8%; and their converts yielding 11% to government of Abu-Dhabi and other investors.

    May be he can squeeze out a small bonus by the end of the year — if they can suck in few more in the markets, using their “P/E” model! Perhaps his own state of the mind is used here in building this model and not “reality” out there that average folks face everyday

  19. Winston Munn commented on May 1

    The chart is saying, “Prosperity is right around the corner.”

    On the other hand, Ned David is saying that debt to GDP is now at its highest level ever – 275%. The previous high was 190% – in 1929.

    I believe we are in immovable object meets unstoppable force territory, and something has got to give.

  20. Andy Tabbo commented on May 1

    This looks like nice confirming indicator of an imminent turn in this market. As a technician, I can tell you the S&P 500 will encounter some resistance into 1416, the 50% retracement of the entire down move. However, I do not expect that to be the final tick in this current bear market rally. 1454 will be seen on this current move….and that will seem euphoric.


  21. Simon commented on May 1

    OMG sell sell sell. Wait no…Buy buy buy….oh what the hell… give me another beer.

  22. mhm commented on May 1

    Asia is up tonight because US stock markets went up. I guess there is no solid fundamentals in play… profit taking will level it a bit in before May expiration.

  23. Eric commented on May 1


    That NEM recommendation for 2008 you made on CNBC is not looking to hot.

  24. Simon commented on May 1

    If I were a construction worker and I saw January and March walking past I’d probably get a hit of euphoria. Come Friday and my last pay check because of the down turn in commercial building I’d be get a severe hit of depression out of all proportion to the mild euphoria I experienced earlier. My perched perving at the footpath below would be over.

  25. aa commented on May 1

    Be fearful when others are greedy.

    I’ll buy… when the next time the market is oversold.

  26. stuart commented on May 1

    KD tonight

    “A bond market blowup is inevitable the way we’re going. We are on target for a $1 trillion deficit this fiscal and Treasury is selling bonds like crazy to pay for all this horse****.

    People bitch about Iraq but that’s a $100 billion problem. The other $900 billion ain’t Iraq, but its that $900 billion that threatens to blow it all up.

    All you need is to get the meme going that there will be a wave of consumer defaults hitting and its over – the bond market will blow up immediately because all that is holding it up is future tax collectability.

    **** on that and the game’s over.

    We’re marking time to that event now. It is no longer an “if”, but a “when”.

    Have you seen Sales Tax receipts for 1Q? Don’t look – they were down nationally. That basically never happens (it didn’t during the 00-03 wreck) and its a 100% reliable leading indicator on economic conditions three to six months out.

    Every time.”

  27. bdg123 commented on May 2

    It likely has some component of market PE or industry PE. It’s the only thing that has changed over the last three or four years. How far does it go back? Did it show euphoria in early 2003 when the PE was off the charts?

  28. Scott commented on May 2

    I think that the chart was just printed upside down. Flip it along the x-axis for a more accurate picture.

  29. Cherry commented on May 2

    a surge of the dollar will scare the bleep out of people. They may cheer it at first, but since 2001, this has been the key for giving the “illusion” of a healthy economy.

    If the dollar loses the Bernanke devaluation it won’t be good. If we lose the Greenspan devaluation, we will be talking outright deflation.

    Hard assets will lose value and the crash in commodities will force big treasury selloffs by the petro-countries as they go poor. The Bush/SA deal of forcing oil prices up to keep interest rates down is the greatest story nobody knows about. Investment would dry up globally as the Bric nations go poor: Basic rule of thumb:
    weak dollar=richer Bric countries
    strong dollar=poorer Bric countries. The big outsourceing investment boom is over. A strong dollar would kill US manufacturing again and make investment globally unpopular. Most of the whining about the dollar devaluations over the last 7 years is a lie. They want it weak, weak as they can get it.

    We started to see a little of this problem last spring when the petro reacted to the 06/07 oil declines and began selling off treasuries.

  30. Kontorhotel commented on May 2

    I am getting a little confused.. I have the last 3 months been super bearish.. But after the brakeup / close above the 1396 / 1406 spot on the spx.. It seems as though someone/ the market just wont let it go down..

    How about some bullishness ideas.

    1: the last 10 years or so the market has done almost 0 %.
    2: Even after BKX, GE, MSFT and so on has fallen some 20-40% the Market is still OK..
    3: maybe we are headed for 2500 on the sp-500 because this is just a very large basebuilding ??

    4: Maybe not ??

  31. Terrence Michaels commented on May 2

    Now that the 1Q08 stats have shown average Americans are at a zero savings rate, and therefore median Americans are technically living off their savings as a prelude to bankrupcy, the stock markets have become like the Titanic. An occasional skyrocket and the shout of hoo-haw drifting over the abyssal dark to those poor buggers sitting there on the Carpathia, knowing that in the morning, they’re going to have to stop what they’re doing, dip into those life savings, and rescue lucre’s profiteers from Titanic.

  32. Pat G. commented on May 2

    It looks as though that double bottom engineered by the Fed has worked out well for the market, so far.

  33. gianluca carrera commented on May 2

    I see a lot of uncertaintity and volatility, and possibly a lot of people underestimating the current situation. Might be ready for another swing?

  34. Cherry commented on May 2

    Do you want to understand the dow? Again I see weak dollar, weak dollar, more weak dollar.

    Nominally, we have not achieved anything. The recent move is a yawner. Even another 1000 points isn’t much.

    We must keep the dollar weak to the debt is paid off. Then we need need then dollar to rise. A rising dollar during a debt crisis will destroy the US economy.

    The mistake during the Great Depression was building up the dollar into the debt crisis. It completely cratered the economy.

    If the dollar and say Oil start moving up and down respectively, a attack on Iran ASAP will most likely happen.

  35. David commented on May 2

    I think we need more of the sideline money in before we see a down turn in the dow. The dow is based on emotions such as greed. When the side line players feel the pain of the money they are losing by not being in the market,and act irrational,optimism in the market may fade.

  36. Jay Weinstein commented on May 2

    OMG sell sell sell. Wait no…Buy buy buy….oh what the hell… give me another beer.

    Posted by: Simon | May 1, 2008 9:17:10 PM

    I don’t know you Simon, but this is the best description of the “investment” management business I have ever read!

    This is a major reason I am retiring, that rant will come another time.

  37. datadave commented on May 2

    “My perched perving at the footpath below would be over.” from a post above.

    wow, creative and incomprehensible for this ‘construction worker’. Can someone translate?

    I lean towards Cherry’s diagnosis of the current economy. I feel that the financial analysists are ignoring the growing income inequality gap and how it affects everything. However, Cherry’s last insistence that war is any sort of solution is cynically inaccurate I hope. But then again military employment is a historical solution of giving young men with few employment prospects an out and keeping the economy going while keeping the most dangerous individuals (young men w/o jobs) out of trouble, even if in harm’s way…and forcing the rest of the population to kowtow to patriotic concerns. Just talked to a young man yesterday who is going into the military saying the recruiter promised him he’s going in for training, not Iraq…(us older men just said out of his earshot that he’d been sold a bill of goods…)

    Another reason for a surging financial market is that there’s a lot of money in the upper 1 percent and they have no where else to put it as real estate isn’t such a good investment these days (property taxes are always growing). Having observed this class close up..(i am in resort construction) is just one long dalliance of visiting their various resort homesteads, fiddling with their accounts on the computer and golf, boating, nice walks in the countryside or shore followed with cocktails, visits, etc. Never has it been so easy. They’re immune from the concerns of the middle class/working class with their worries about gas, mortgages, rent, etc.

    It’s also interesting how many have relationships with military people who also enjoy early retirement. The McCain’s come to mind. (‘cept he’s not ‘retired’.)

  38. Steve in TN commented on May 2

    Three reasons led me to agressively buy in early-mid March:
    1) I was underinvested in equities,
    2) A successful double-bottom in the DJIA
    3) The VIX soared from the low 20s to the mid 30s in a month.

    A possible 4th reason was the extremely bearish posts on two or three financial blogs I look at. If everyone has sold, the market can’t go down much further. I’ve been investing for more years than I’d like to admit and after all these years I realize that no one is going to ring a bell for you when its time to buy.

  39. D. commented on May 2

    Although I am mid-term bearish (12-18 months) based on all the economic data, I am long-term bullish. Am I missing something that the stock market just glazes over all bad news?


    Yes. It seems that mostly everyone is short-term bearish and long term bullish. Since the market looks 12 months ahead, it’s holding up.

    If things get really bad in the next few quarters, maybe the market won’t stay long term bullish.

  40. D. commented on May 2

    Steve in TN:

    It’s funny, go figure, no matter what I do, I can always find a good argument for doing it.

  41. Steve in TN commented on May 2

    I should have added one more bullish factor on my post of a couple of minutes ago.
    Bernanke’s Fed has to be the most stock market friendly I’ve ever seen. Just when the financial news became extremely pessimistic and and stock market seemed to be falling off a cliff, the Fed came to the rescue with rate cuts/other Fed actions to prop up the system. It’s like they will do anything and everything to keep the system afloat and the stock market from capsizing.

    With all the above factors the odds are on your side as a stock market bull.

  42. Mephisto commented on May 2

    Cherry..I find your points in this thread very interesting. Is there a primer wherein I can read more?

  43. Guambat Stew commented on May 2

    Hard to be euphoric (in 2005) when:

    MARCH 31, 2005: Silberman-Robb commission, the presidential commission on Iraqi WMD, concludes:

    [T]he intelligence community was dead wrong in almost all of its prewar judgments. [USA Today, 3/31/05]

    MAY 1, 2005: Downing Street Memo revealed

    Bush wanted to remove Saddam, through military action, justified by the conjunction of terrorism and WMD. But the intelligence and facts were being fixed around the policy. [Downing Street Memo, 7/23/02]


    With (2008) primaries in full swing, it’s now certain it will be ABB (Anybody But Bush). Wouldn’t ordinarily ascribe politics to economic charts, but this is about sentiment after all.

  44. DL commented on May 2

    I’m pretty sure that the Citigroup panic/euphoria parameter is the highest it’s been since Barron’s started publishing it.
    It’s hard to know exactly how to interpret it because they don’t say what it’s based on. But I’m betting that we get a sharp drop (to S&P 1300 or so) after going a little higher first.
    People are betting that the Fed has fixed all of the problems. No doubt, however, there’s another shoe to drop pretty soon.

  45. foo commented on May 3

    Citigroup got some more financing. They are euphoric.

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