This is rather evident by the bullish INVESTORS INTELLIGENCE POLLS that show a current streak of 154 weeks of bullish plurality. If you go back to 1998, there has only been 8 weeks where BEARS outnumbered BULLS! That would be 353 weeks out of last 361 bulls outnumbered bears! This poll goes back 42 years and of course this is a record. Also consider we are now near 3 years into this cyclical bull, it is long in the tooth.
Contrast that with 1994-5 period, right before the rocket shot to all time highs there was a period where bears outnumbered bulls for 45 straight weeks (data provided by EWFF OCT). THAT was the FUEL that powered the historic rise.
Now fast forward to today. WHat has the bulls been able to accomplish considering this historic string of bullishness? The Dow STILL sits in a trading channel and has gone net nowhere in 2 years, not even above 2004 high let alone 2005 highs, and no break in entusiasm! And the action in the little stocks, volume of shares has eclipsed that seen at 2000 bubble top.
But the landscape is different. We have a President that is losing popular support faster than you can say oH SHIT! We have a consumer following suit with dranmatic declines in sentiment. We have gasoline, energy cost increases eclipsing anything we have ever experienced (see last post of link to OCT contraryinvestor) and it is already written in stone that this winters heating bill is going to rise by at least 30% in many areas. We have rising short term interest rates, and record late payments to credit card companies, and a new bankruptcy bill, putting even more pressure on the average consumer. Will have an effect on his most important retail period XMAS shopping?
EVERY prior similar % wise increase in gasoline costs (AVG REG STILL AT $3.00 and that is 50% above last year!) has resulted in a Recession.
We enter OCT, a historic weakish period in stocks, and still no dampening in enthusiasm. It is said in a BULL market, swift corrections would come to shake out the weak hands, this has not occurred.
Instead of being wary of effects to economy from Katrina, you see instead a RUSH to PILE into companies that might profit from it. Instead of being wary of effects of pandemic flu scare, we see investors flocking into any stock even remotely connected to research etc in that area, even though very few cases exist, even though a vaccine for instance is far from ready for testing even. A flock to tiny boutique biotech shares, that historically never go anywhere and are constantly runing out of money or selling off promising drug candidates to raise cash (NEXM).
Credit derivitives, which hardly no one understands grew 50% to over $12 trilion.
The advent of the internet underscores the ability and desire of consumers to find the LOWEST PRICE, and adds to deflationary pressures. With high gas prices, internet shopping may enjoy a nice boost this year end.
Insiders continue to sell into the rallies. Alternative minimun tax ATM is going to leap frog from just 4 M taxpayers in 2005 to almost 20 MILLION in coming 2006 returns! Chart shown in contrayinvestor missive shows this could wipe out nearly the entire Bush tax cut! and NO ONE SEES IT COMING!
Higher energy prices, filtering down and through almost our entire purchasing needs, and the continuing housing bubble, will keep pressure on the FED to be wary of inflationary pressures and keep them hiking rates. EVEN if they halt, the damage is done and what good will it do? Start another housing boom? Been there and we have done that. explosive car sales? been there done that. Got an ipod? done that too! Need a new computer? no thank you.
Business tax incentives have run out, a government deep deep in debt and rising fast, what are the options? Bush is even losing suppoty within his own party with a few Republicans calling to CUT government spending, further dampening economic activity if that occurs and more than offsetting any positive effect spending for Katrina will provide.
And consider the demand for building materials wil rise and pricing pressure there as well. But all this eats into discretionary consumer spending, and the consumer is what this country runs on.
People have spent TOO much on homes, and have already raided the higher valuations for consumption, what now?
Help wanted dropped by a whopping 4 points to a WEAK 35 reading! Setniment has plunged, wages not growing, spending declining, are these short term Katrina effects or a sign of something more persistant and troubling?
Think of this, exact timing aside, there have been 353 weeks of net bullish sentiment out of last 361 weeks over 7 years and my goodness is that a HEAP to burn off in the coming Bearish trend to keep pressure on the economy and markets for some period to come.
A healthy market would have worked off some of this bullishness already, it is almost like its afraid to look down, and I think who can blame it!
Even with a healthy retrace should world demand be dampened by a weaker global economy, high energy costs may be with us from here on out, as production nears capacity and world demand has been growing as India, China and other econmies have grown and industrialized and we are saddled with excess world manufacturing capacity.
Current conditions and stresses lead me to believe that we have seen the peak in demand for credit expansion and we are going to enter a period of credit contraction, as consumers dig in. IF CONSUMERS begin to get cautious and cut back, that trend may be hard to break and it will trickle down to corporate profits and all across our economy, if the driver gets out of the vehicle.
There is AMPLE reasons for caution, and in your investing allocations to get more defensive and IMHO this is NO TIME FOR HEROES.
Duratek
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