Hussman Funds – John 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
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