Too Few Bears Spells T-R-O-U-B-L-E
By Barry Ritholtz - December 9th, 2009, 12:00PM
Albert Edwards of Société Générale makes the simple contrarian arguement that the low number of equity bears is a bad sign for equities:
“The current extremely low number of equity bears (the lowest since the market top of 2007 – see chart below), the likelihood is that the next leg of the long-term structural valuation bear market is closer than people might realise.”
Here is Edward’s chart:
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click for larger graphic
Source: Datastream, SG Cross Asset Research
December 9th, 2009 at 1:11 pm
I sense a market capitulating to the idea that we are not going back — to either the highs or the lows.
Welcome to the era of grim growth.
December 9th, 2009 at 1:12 pm
Welcome to the ____________ recovery.
December 9th, 2009 at 1:15 pm
Be careful with such narrow minded conclusions (it is not as simple as you think).
For example, Kass has declared the same when S&P was ~1000, and since he has been painfully fighting the tape as S&P continued climbing 100 points higher.
http://i48.tinypic.com/255qlck.png
In addition, Investor Intelligent is extremely volatile (it needs some smoothing, as using a moving average instead of making any conclusions from the short-term spikes)
December 9th, 2009 at 1:17 pm
Its not a precise timing tool
We cans till have some upside from here, its just a broader warning — as in trouble ahead, not sure when!
December 9th, 2009 at 1:29 pm
Moreover, the Investor Intelligence data used for this chart is lagging by a few weeks.
The bullish sentiment has dipped (during the current sideway consolidation) down from that spike (as the next set of data will show).
December 9th, 2009 at 2:02 pm
The number doesn’t mean much during bull markets – that’s probably why he didn’t include the last bull in his chart.
December 9th, 2009 at 2:26 pm
Also relevant to note (to get an idea about the motivations of the individual who made this chart) that Societe Generale’s Albert Edwards is an uber bear who contrary to Kass has completely missed the March bottom (Edwards was waiting and still waiting for SPX to drop to 500). He also continues to predict global equity markets at a new low and another global recession in 2010.
December 9th, 2009 at 2:28 pm
Perhaps if Mr Market would quit shooting the bears there would be more of them around.
When is hunting season over, anyhow?
December 9th, 2009 at 2:42 pm
And in other news it is reported that polar bears are resorting to cannibalism. We are even eating our own here!
December 9th, 2009 at 2:51 pm
@How the Common Man Sees It
The environmentalists from Hollywood, trying to scare the public, dropped and killed too many polar bears from the sky while filming yet another global warming B.S. propaganda.
http://www.youtube.com/watch?v=fxis7Y1ikIQ
December 9th, 2009 at 3:42 pm
if you miss the bull market its a bubble, if you got in early- its called a bull market…. right?
December 9th, 2009 at 3:46 pm
What is going on with energy? Is this all dollar-driven? It’s off 10-12% from it’s recent highs. I thought we would inch toward $90 by now, but we are going the other way.
Doesn’t matter, I suppose, in the end. Oil can spike and drop like not even the S&P can. From 90 to 140 and back to 40 in about 12 months of 2008.
December 9th, 2009 at 4:16 pm
What people say and do may be 2 different things. Go to The Short View at FT and watch the video of what US retail investors are doing. Draining equity funds and adding to bond funds . It is pretty good with some nice charts.
I also want to meet these bullish people. I get all kinds of emails warning about this and that, the next shoe to drop etc….I have yet to meet anyone who tells me to go all in equities. I hear there are 3% USD bulls for a long time too. How’d that work out? And with no yield in safe harbors like MM accts…..Where is the money going to go ? Maybe bonds at these low yields ….ya right. Maybe into redecorating the bomb shelter, ya that’s it. It’s been a whole 9 months since the last meltdown, of course, we are going to get another one next week right?
December 9th, 2009 at 4:19 pm
Can it be? Heaven forfend! Skepticism toward a bearish post here on the BP. Sheesh, now I’m really worried.
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BR: I too thought the skepticism has been more towards the bullish post !
December 9th, 2009 at 6:58 pm
I’m with catman, looking at the chart. Or maybe my humpday brain is just tired. I see the red line (inversed as it is) as a leading indicator of the market falling. (we don’t have many cycles to go on here, so whatever on reliability) So, on the right side we have what? Bears inverted as a leading indicator of more rise in the market, or what?
December 9th, 2009 at 7:05 pm
@whodunit: Take a gander at JNK (junk bond ETF) versus SPY (S&P 500 ETF) on a chart. They are tracking each other closely and have been for awhile. If the S&P gets a fresh push, JNK will go along with it. If it drops, you’re no worse off. If, however, the market chops sideways for months on end, JNK is paying a 12.5% yield vs. SPY’s 2.25%. Methinks that is why there is a shift into bonds.
December 9th, 2009 at 7:54 pm
Porsche87, The shift out of equities was into Gov paper at low yields, not corporates. I do not think the average person fleeing equities knows what a bond is, never mind the different types. It’s just that someone told them they were “SAFE” But thank you for the response. I watch JNK everyday, and agree with your strategy all the way.
The point was to show what people say and do are two different things. Even though II is advisors. Not every advisor knows what’s what. The 2008-2009 meltdown showed that in spades.
In this yield starved environment, with rates low for quite a while it looks like, risk assets are probably where to be for the time being.
I think the bears are making a mistake, underestimating the continuing low rates, and what massive government stimulus and money supply, with backstops for everyone, can do. And the fact that it is so hard to turn the deflationary pressures, that these guys are not letting up until they are darn sure inflation takes hold, and that is going to be a while IMO.
Cheers
December 10th, 2009 at 2:22 am
To Barry Ritholtz,
I know Albert Edwards, he has looked out for me for a long time now. It is obvious you get his reports, I think. I sent him a link from your blog. No harm intended. To let him know he is being read about in the USA. Also asked Mr. Eric King of King World News to do an interview with him. Probably will not happen since he is not independent and works for Soc. Gen.
Kind regards,
David
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BR: when it comes to Wall Street/Big Firm resesarch, I am aware of the copyright rules — I only reproduce an excerpt, not the entire thing.
I know Albert, as well as his former partner James Montier (now at GMO) and have a lot of respect for their work . . .