As we all know, stock prices are the only thing where the higher they go, the more people want to buy and the lower they go, the more people want out. It’s the exact opposite human emotion that responds to a change in prices of any other good or service. On Aug 26th when the S&P 500 was at the 1040-1050 level, the AAII measure of individual investor sentiment had Bulls at 20.7, the lowest since Mar ’09. Today with the index now at 1125, 7-8% higher, Bulls stand at 50.9, the highest since Aug ’09. Bears have moved from 49.5 3 weeks ago to 24.3 today, the lowest since Dec 31 ’09 and Feb ’07 not including the end of yr measure.

Gold is at fresh record highs again as the Japanese highlight the precarious nature of fiat, paper currencies with their unilateral intervention to debase the Yen. As gold is a currency with a 5000 yr history, I believe its fair to analyze the S&P 500 returns in terms of gold. Year to date in gold terms, the S&P 500 is down 14%. The Yen is not seeing a follow thru after yesterday’s sharp decline and the Nikkei is little changed after its 2.3% rally. The Yuan is at a new high vs the US$ for a 4th straight day and combined with fund raising fears again with Chinese banks, the Shanghai index closed at a 3 week low. India raised interest rates as expected. Spain continues to separate themselves from Portugal, Ireland and Greece as they sold 10 yr and 30 yr paper at yields well below that of 3 months ago while the others continue to see steeper funding costs.

Category: MacroNotes

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