Hussman FundsJohn P. Hussman, Ph.D.: Capitulation Everywhere
The bears are gone, extinct, vanished. Among the ones remaining, many are people whom even I would consider to be either permabears or nut-cases. And yet, the historical evidence for major defensiveness has rarely been stronger. The newest iteration of the bullish case is the idea of a “great rotation” from bonds and cash to stocks, as if the outstanding quantity of each is not held by someone at every point in time. The head of a “too big to fail” investment firm argued last week that stocks are “underowned” – as if every share of stock presently in existence is not actually owned by someone. To assert that stocks can be “underowned” seems to reflect either a misunderstanding of how markets work, or a desire to distribute overvalued institutional holdings onto the unwashed muppets. Likewise, the idea of a “rotation” out of bonds and into stocks begs the question of who will buy the bonds and sell the stocks, as someone must be on the other side of that trade. Similarly, to “move cash into the market” requires a seller of stock who becomes the new holder of said cash.


Yesterday we noted that The New York Times, USA Today and The Wall Street Journal all had lead stories about the stock market, every one of which was very bullish.

Regarding Hussman’s claim that bears are gone, see the first chart below.  It shows the tightest range of bearish newsletter writers in the last 50 years! We have argued this shows a core of newsletter writers (about 20% to 25%) who will never change their opinion from the dark side.

So, when the market rallies or declines, the other 75% of writers (second chart below) vacillate between bullishness and looking for a correction.  Prior to a year ago it was the correction camp (blue line, second chart) that never moved and the bulls and bears moved as mirror images of each other.  Now the bears are in an unusually narrow range while the vast majority of newsletter writers are bullish or bullish but looking for a correction first.

We believe this is the result of the belief that the Federal Reserve will not allow bear markets.  Print enough money and Wall Street gets it.  Prices are not allowed to go down.

So it appears the only bears for the time being are the permabears that will never change their opinion.  This has been the case for almost a year.  You can thank the Federal Reserve for this situation.

<Click on chart for larger image>

<Click on chart for larger image>

CNBC – Dow 20,000 May Be ’4 Years Away:’ JPMorgan
The Dow Jones Industrial Average (Dow Jones Global Indexes: .DJI) could peak as high as 20,000 four years from now, JPMorgan Chief U.S. Equity Strategist Thomas Lee told CNBC on Monday. He predicted “2,400 [or] 2,500″ as the top for the S&P 500 Index in a similar time frame. Making his bullish case, Lee pointed out in a “Squawk Box” interview that the market has been able to reach multi-year highs, despite investor reluctance to be over-weight equities. On Friday, the S&P closed above 1,500 for the first time since Dec. 10, 2007. The Dow finished at its highest level since Oct. 31, 2007.


Source: Bianco Research

Category: Federal Reserve, Psychology, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “Have Stock Market Bears Gone Extinct Because Of QE?”

  1. TLH says:

    AAPL ran out of buyers. When will SPY run out of buyers? GNP not good, but stock market at record highs. How is this not a Fed induced bubble?

  2. Moss says:

    The whole rotation meme sounds like a scheme whereby the financial market participants including the Fed and all the TBTF banks, are trying to convince everyone to buy stocks knowing full well that the Fed balance sheet can’t grow forever. I hear the term ‘transition to normalcy’ a lot. The thing is that if all the big money players do it then it becomes self fulfilling. Front running on a very large scale.

  3. rd says:

    My primary concern with the current situation is that the bulls know they are bulls because of the Fed. Slowing economic growth, slowing earnings growth, relatively high valuations on a long-term basis (CAPE, Q etc.), flat or declining disposable income, etc. are not bull drivers. Fed QE and ZIRP are. I don’t think this market could compete with cash and treasureies at low but normal interest policies.

    So we are setting ourselves up for a plunge when “investors” suddenly realize that the Fed has moved away from perpetual easing unless the indicators above have turned north again. A couple of changes in wording in Fed press releases could start that stampede.

    Not one of 83 economists got within 0.4 of the GDP number yesterday, so don’t rely on them for help in predicitng the turn when it comes. Instead be ready for the Polar Express ride through the mountains. So I just plod along with a broadly diversified portfolio that will allow me to access cash for a year or two if we need it while other assets should rise over the long-term (1-2 decades) regardless ofthe short-term waves.

  4. Low Budget Dave says:

    I think it has to do with the purpose of the Fed. According to textbooks, the Fed was supposed to provide stability to the monetary system. In the last 20 years, it has become increasingly obvious that the Fed believes their purpose is to provide stability to the financial system.

    I am not a Fed watcher, but it seems to me all of their actions for the last 20 year or so have been designed primarily to benefit the stock market. Bond markets are a smaller consideration, but occasionally those also seem to show up on the Fed’s radar.

    Although the financial markets are obviously a huge part of America’s monetary system, they are not the only part. Although you would be hard-pressed to prove that just by reviewing actions of the Fed.

    People seem to have deduced, correctly, that the Fed’s main interest is in securing a rising stock market. Being a bear in these circumstances would be silly. If the gas station starts giving away free gas, no one is going to buy a hybrid until the free gas runs out.

  5. stonedwino says:

    Who in their right mind would bet against the House and the Casino? Just look at yesterday. Q4 GDP came in negative and the market did not budge? Come on, Man!?

  6. stonedwino says:

    It does not take a rocket scientist to figure out that the “markets” have been totally disconnected form reality since 2009. There used to be a correlation between the real economy and what was going on Wall Street – that has disappeared and it just smells bad…so bad…and you wonder what happened to Mom & Pop? LOL…

  7. Concerned Neighbour says:

    You know what bothers me the most about the last few years is the quality of business journalism. Although occasionally you’ll see the mainstream outlets tell it like it is (the market is higher due to the Fed blowing another bubble), usually they all read from what sure strikes me as the same playbook.

    In 2011, the story was about increasing earnings.
    In 2012, earnings growth had largely tapered off so the story became about margin expansion (because since when doesn’t a stagnant, precarious economy imply massive stock multiples?)
    In 2013, the story is now about rotation out of bonds.
    In 2014, the story will probably be that selling is now illegal, so you may as well buy at DOW 36K (hey, it’s a bargain of a lifetime!)

    It’s as if they’re all being told to say the same thing.

    The quality of financial journalism in this country (or regular journalism, for that matter) is just abysmal.

  8. Greg0658 says:

    grrrr – almost groundhog day
    had a roadtrip yesterday
    dual purpose – see a real life smooshed friend (cardboard bail got him) and my old hall move across region
    roadtrips after a few are a good sightsee
    that Caterpillar is a dynamo .. every area needs one (at least) the sponge as to the hand wringer
    Manhattan gotta hand it to your duals – artist draw & money draw

    I’ve asked for but alas, a region lock & dam sys .. anyway next

    old ones die so that new ones are born – forget who said that (or if its paraphrased) I could research – but

  9. MikeNY says:

    S&P 2500, eh?

    So what’s going to drive it? Profit explosion? Multiple expansion? New golden era of growth, driven by some unforeseen technological advance?

    No — according to Lee, it’s “more money coming into the market”.

    Why don’t I find that comforting?

  10. Petey Wheatstraw says:

    Seems that the political basis for keeping the stock market at these levels — propping up insiders and the TBTF as being necessary to the continuation of the state while forcing austerity of one form or another onto those smaller businesses and individuals deemed expendable (those not bound up in the fascia), — would seem to foreshadow a rather Fascistic form of society.

    “State intervention in economic production arises only when private initiative is lacking or insufficient, or when the political interests of the State are involved. This intervention may take the form of control, assistance or direct management.” (pp. 135-136)

    — Benito Mussolini, 1935, Fascism: Doctrine and Institutions, Rome: ‘Ardita’ Publishers.

    Only, in our real situation, we don’t see the alliance of state and corporate interests as resulting in any real “economic production.”

    In our immediate case it seems that the markets soar while everything else atrophies. QE with a lack of real growth of the GDP or any meaningful organic growth by those not recipients of the largesse that is QE , will eventually result in a tipping point.

    We have been walking this crooked mile for so long now, that, to many, the crooked is now, apparently perceived as being straight. As a result, decisions made are accepted as being in-line with the natural condition — the condition of free-markets and the winners and losers that free markets should naturally create and destroy.To many, this skewed vision has come to look like a natural and appropriate outgrowth of the current economic system.

    Some, having no desire to break with the apparent reality of our situation, or ignoring it all together, in hopes that going along will get them along, we call Bulls. Those who can still recognize that the crooked road does not lead to broad stability, but, instead, to failure of the system when we reach a certain tipping point, are called bears.

    All that is not well, cannot end well. Reality will see to that, as it eventually did with Il Duce. Then again, it might persist as long as Post-republic Rome did (thanks only to military supremacy — while paying lip service to the legitimacy of the former Republic ideals from which it grew like cancer). If the latter case is the path we will continue down, we had better start looking out for Barbarians at the gate — some outside looking to get in, and some inside, looking to get out. And bulls and bears will perish together.

    On a side note, but relevant: Lance Armstrong did quite well while riding the crooked path, but as soon as reality overcame his reliance on the crooked being the norm or the reality and recognition of it having been exposed for what it was, he lost it all AND damaged, beyond redemption, the system in which he competed and thrived.

    The Bears will eventually triumph, but it will not save them as they cannot answer the fundamental question of WHEN the reality will finally reemerge.

    I’m a perma-bear, I know.

  11. eliz says:

    The stock market is a perception game. The bears have mostly gone extinct because the perception that there is trouble ahead has diminished. There is more buying than selling. Note, I do not say there are more buyers than sellers, as the market – like politics and the economy is primarily influenced by fewer and fewer players.

    Parroting the sentiments of David Korten: People in the stock market are not investors, they are gamblers.

  12. mad97123 says:

    For some reason the stock bulls think the Fed will never allow the stock market to drop, but they will be powerless to keep interest rates low, their stated goal.

    Then we all supposed to run into stocks driving the dividend yield down while interest rates rise.

    What will then be the new rationale for why we should all be buying low yielding stock? Because they are up. Buy high, sell higher.

  13. [...] Payroll figures are released early tomorrow. I will be busy drinking coffee and yawning when it happens.  Today’s charts (courtesy of and are below…plus a bonus one from Bianco Research via The Big Picture. [...]