Delusional Raging Bulls?

This seems to be an ongoing sentiment debate we've been having for too long: How bullish is the investor community really? We've looked at this repeatedly (here and here most recently) over the past few months.

In Sore Winners, Barron's Alan Abelson answers the question with one word- Very:

What strikes us about the current investment scene is how defensive, even delusional, the raging bulls are. And despite rolling in the long green by grace of the big market year, what a bunch of sore winners they are, insistent that everyone else is bearish and only they, brave souls, have the courage to be optimistic.

What hokum! For the fact is everyone's bearish except the mutual funds (whose motto is "cash is trash") and the hedge funds and the private equity funds, traders of every stripe including the racy types who trade futures and options (the Market Vane and Consensus Index surveys: both 70% or higher bullish), Joe Doaks and Jane Q. Public, investment advisers (Investors Intelligence: 56.5% bulls, 19.6% bears) and brokerage house strategists (for whom "sell" is a four-letter word). Did we leave out anyone?-oh yes, and the occasional tourist from Mars.

If everybody's so darn bearish, pray tell, who has been buying stocks like there's no tomorrow the past couple of months? Or are they a new breed of masochistic bears that gets their kicks from buying stocks because they just know the market is doomed to tank?

All of which gives us a strong sensation of déjà vu and, more particularly, why this glorious new year of 2007 seems so much like the not-so-glorious year of 2000. As we remember, 2000 began amid enormous euphoria, with the stock market headed for the moon. While the rationalizations at the time from the good-cheer incorrigibles of why the market was neither pricey or risky differed from the current versions of why the market is, if anything, undervalued, the reasoning is as flawed now as it was then.

As we also remember, 2000 ended in tears and tears that kept flowing for a long couple of years. So keep a generous store of hankies at the ready and hope the denouement to the current manic mood doesn't do quite as much damage to your psyches, let alone your pocketbooks. We were about to say, Happy New Year!, but maybe we'll wait for a more propitious juxtaposition to do so."

That first paragraph is a keeper . . . Say what you might about Abelson -- the man can sure write.

Comments

[NO DooDahs:]

Everybody reading this should do themselves a BIG FAVOR! Search the archives at Business Week and see what Beary Ritholtz' views of the market were in the last two annual surveys. Then go back and do some searches on Abelson.

Both these cats are frozen perma-bears. I would be surprised to find that either of them had EVER expressed outright optimism for the overall stock market.

2007 Jan 02 09:30 AM

[Malkiel:]

Alan Abelson is the one bear I can bear; his humorous musings in Barrons kept me laughing through the '80's as I watched the new Jazz Age unfold.

Someone needs to do one of those psycho-statistical studies of just how tightly bears revert to the mean; I suspect, in truth, that like puritans on the subject of sex all price expansion threatens to awaken lustful feelings that they can only keep in check by fronting grim sobriety to the world...

2007 Jan 02 05:46 PM

[Michael Church:]

Probably not the actual answer. But how about this: Short Covering. Short interst is close to all time highs, that could answer exactly what you asked. Bears capitulating and covering. They may cover shorts with buying, but i doubt they/you cover the bearish stance... Hence you can get pessimism in a rising market. The kicker is, what happens when the near record short interest turns squeeze, and bullish sentiment starts rising rapidly.... Just a thought...

2007 Jan 03 11:24 AM