What Looks and Smells Like a Bull Market May Not Always Be One

Whenever I see articles published in mainstream media that even remotely hint of an increase in bullish sentiment by retail investors, especially after an extended market rally like we just experienced since the March 2009 lows, I almost wince in anticipation of the carnage to follow. (I realize that I just posted a blog report that encouraged many to get over their fears and pessimism and just move forward with their lives, but getting on with life and getting on with the market are two entirely different things. It never hurts to be cautious when new participants enter the market with any sizable force.)

When it comes to investing, sometimes the public gets it right and sometimes it gets it wrong. John Bogle, founder of Van Guard index funds, does not quite see it that way and believes that U.S. retail investors have a penchant for being in the wrong place at the wrong time. I guess my real concern is from whom will these new Johnnie-Come-Latelies (and their fund managers) buy shares if they buy into buying the successively higher dips.

What looks like a bull market and smells like a bull market may not always be a bull market. Sometimes it is just plain old bullshit, so be careful not to step in it. Wall Street is notorious for buying weakness and selling into strength. While I am an eternal optimist, I still prefer to buy my bananas when they are green.

For what it is worth, here’s the excerpt from the Financial Times:

Sitting in the corner is miserable while the party is in full swing. Yet, with the S&P 500 up 60 per cent from its March trough, US retail investors have so far watched from the sidelines. Mutual funds dedicated to US equities have seen a net $14bn walk out the door this year, according to Lipper.

Meanwhile, some $3,300bn is still sitting in money market mutual funds that yield virtually no income, down from a crisis-time peak of $3,800bn. Cash leaving the safety of those funds has been put to work in bonds. So boosters for the equity market rally, eyeing still subdued trading volumes, are waiting for the partypoopers to join the dance.

If you are personally responsible for navigating the market condition for your investment portfolio assets, be careful not to drink too much from the punchbowl.

Disclosures: Hillbent.com, Inc. or its affiliates may own positions in the equities mentioned in our reports. We do not receive any compensation from any of the companies covered in our reports.

Comments

[dvdivx:]

"What looks like a bull market and smells like a bull market may not always be a bull market. Sometimes it is just plain old bullshit"

Too funny. The market is now more like a rigged casino than something based on fundamentals. A lot of the money in MM isn't going to get into the market. It would be far easier to convince worried investors in MMs and CDs to diversify into gold and foreign bonds than stocks.

Oct 27 05:08 AM

[fwi:]

Great article--If Wall Street is keeping the party going, waiting for the retail investors on the sidelines, it is going to be a long wait. Consumers are tapped out--in fact many have had to use some or all of money dedicated to retirement funds or private investing to keep the household together.

And as for the "pain of not being at the party"--many individuals (taxpayers) are paying for the last party, unlike a lot of Wall Street. It's like the kid with another speeding ticket, asking his parent both for the money to pay it off, and complaining that Dad is driving too slow.

Oct 27 12:53 PM