Can Investor Sentiment Be Rescued?

A tip of the hat to Decision Point for this nice graphic of investor sentiment, as measured by the American Association of Individual Investors. (Here's the link to the free trial information; it ends on October 5th). Note how the proportion of bulls to bears (bottom pane) has steadily declined from 2004 to the present. That ratio is particularly low at present, as you can see by clicking on the chart and observing the values below the green line.

Given the wrangling and finger-pointing in Washington, it is not at all clear that any rescue plan will be sufficient to rescue investor sentiment.

Comments

[SW Richmond:]

"Can Investor Sentiment Be Rescued?"

No.

2008 Sep 27 12:59 PM

[Michael Zhuang:]

Of all things to rescue, why investment sentiment? Don't you know the more bearish the sentiment, the higher the future return. This has been studied using the same AAII sentiment data: (Website link to the left)

investmentscientist.co.../

2008 Sep 27 01:25 PM

[bds231:]

Call me naive, but I think investor sentiment will be just fine once major, formerly iconic companies stop going out of business right and left.

2008 Sep 27 01:56 PM

[firefox2:]

Given a little time, greed always restores investors confidence ... such is the way of the land.

2008 Sep 27 02:32 PM

[Moon Kil Woong:]

100% the economy is going into a recession. It has nothing to do with bank loaning. It has to do with people wanting and being capable of borrowing.

Do you want to rack up debt right now? Do you think the newly unemployed are going on spending sprees? Or are the people who are losing equity in their homes going to spend more? Paulson's argument is a pathetic lie to artificially price homes for bankers to cover they $61 trillion pyramid scheme in CDS'. It has nothing to do with the recession aside from adding inflation to the mix.

2008 Sep 27 03:15 PM

[MarvinMBA:]

The bailout will just add to negative investment sentiment...being screwed by a bad economy, bad stock market, negative CD/Treasure returns and now increased taxes forever and ever. People lived by borrowing and now the game is over, the chickens came home to roost and the game will never start again in my lifetime and I'm only six years old. Prudent investors got screwed by the imprudent which is a lesson learned by the prudent...they should have followed the "live beyond your means" crowd and kept their money safe and waked away from the game now after extracting all the fat. I suppose the smart prudent ones did. The failed fat cats are going to be bailed out by the government and the failed lean cats are going to pay the bill.

2008 Sep 27 08:21 PM

[sohony:]

the correlation by eye between high bearishness and rallies is noteworthy:
static.seekingalpha.co...

anyone have a mathematical analysis of this?

2008 Sep 27 09:06 PM

[investor88:]

Brett has written a good article with the conclusion that it is not at all clear that any rescue plan can rescue current poor investor sentiment. Comments by readers has served to throw more light on the state of investor sentiment, and if anything readers' useful comments support Brett's conclusion. Even the ever bullish Jim Cramer has written an article over the weekend at cnbc.com talking about Dow 8k rather than Dow 14k. So by all means trade some but don't bet the house on a sustained rally?

2008 Sep 28 03:31 AM

[OldLimey:]

"Can Investor Sentiment Be Rescued?"

No - not until the government stops manipulating the market and refusing to let it find a natural bottom. Tomorrow's rally will be more air blown into a ripped balloon.

2008 Sep 28 10:48 AM