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Bull markets are said to climb a wall of worry. And during the past week this valued adage came to my mind again and again.
You see, I’ve been travelling quite a bit in Europe … giving speeches and presentations. This gave me the opportunity to talk to many institutional and private investors, and entrepreneurs. And was I ever surprised about how much things have changed!
From: “The Fed and the Government Will Not Let it Happen” …
To: “The Fed and the Government Can’t Fix It.”
In 2007 and during most of 2008, I was extremely bearish, predicting a severe global recession, a bear market in stocks and commodities, and a banking crisis.
“That’s very interesting, Claus,” is what I was regularly told. “But you’re much too bearish. Don’t you see how the world has changed? The central banks and governments are so much brighter now than they used to be; they just won’t let it happen.”
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| Back when I said a bear market was on the horizon, many pundits disagreed. |
In other words, my very bearish forecasts were met with high skepticism.
Now the story I have to tell is somewhat different … I’ve turned medium-term bullish for the economy and the stock market. I expect a bounce lasting at least until mid 2010.
And you know what? I get more or less the same reaction as I did two years ago, with one twist: “That’s very interesting, but we don’t believe it. The problems are too big to be solved by central banks and governments.”
I’m Left Wondering … Who Is Actually Bullish?
Maybe my experiences are a statistical outlier and not representative of what’s going on in the world of finance. Or maybe this European picture differs totally from what’s going on in the U.S.
But I doubt it.
The bearish reports I’ve read during the past few weeks are constantly referring to too many bulls!
Yet the U.S. sentiment indicators aren’t showing the high degree of bullishness that the bears are constantly referring to when underlining their own bearish forecasts.
Take a look at the chart below, which shows the Investor’s Intelligence Advisor Sentiment.
The bears correctly state that the bullish sentiment is nearly as high as it was when the stock market hit its all-time high in October 2007. But they neglect to mention that in October 2007 the number of bulls wasn’t especially large!
What’s more, during each of the bull market years 2003, 2004, 2005, 2006, and 2007, there were long stretches of much higher bullishness in this indicator. The same holds true for prior bull markets.
So historically, the bulls-to-bears ratio does not look excessively high.
Meanwhile, Many of Those Who Saw the Crisis
Coming Are No Longer Bearish Over the Medium Term …
Over the weekend I was one of the speakers at the Summit of Austrian Economics in Vienna. Many of the European analysts — professors and practitioners — who predicted the global financial crisis were gathered there. Plus Marc Faber and John Naisbitt appeared as special guests. All were given the opportunity to present their current outlook.
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| For the medium term, I expect the market to continue advancing. |
Interestingly, all of these very successful forecasters are still very, very bearish and anxious about the longer-term future … say three, five or even ten years out. But for the medium term, they aren’t bearish anymore!
Of course there were differences about how long this medium-term may last. Opinions ranged from one to three years — with the usual caveat that forecasts will change if developments warrant.
Still, these independent thinkers — contrarians if you will — have shown a very deep understanding of what has been going on economically during the past year. They were on top of the game then … and I think they’re on to something again.
Best wishes,
Claus
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