Over Bullishness Illustrated

Since January, the froth in the market and over bullishness has not been compensated by any meaningful decline. Any decline has been retraced the next day. The major rally that started in October 2011 has been, in my opinion, much overdone, and has a very high risk of severe correction, if not finally a capitulation of the bulls.

Here are some quotes from the news flow since January — I'm sorry, I won't have time to comment on them as they are too numerous, but anybody with their reality lenses on should see that big trouble is ahead. You will also notice the rationalisation, and the denial of economic reality, explaining why the market will keep on going up.

Bull Market Defying Strategists Seen Continuing by Birinyi
Jan. 10 (Bloomberg) -- Laszlo Birinyi, whose prediction the bull market would weather a five-month retreat came true in October when the Standard & Poor’s 500 Index rallied 11 percent, says stocks will keep climbing in 2012. 
Equities will gain at least 8 percent as improving corporate profits force bears to capitulate, according to Birinyi, who manages $400 million in Westport, Connecticut. Forecasts for declines from economists Gary Shilling and Nouriel Roubini were repudiated in 2011 as the benchmark gauge for American equities erased a 13 percent drop.
Speculators Increase Bullish Wagers Most Since ‘10
Jan. 9 (Bloomberg) -- Hedge funds raised their wagers on higher commodity prices by the most since July 2010 after signs of accelerating U.S. growth bolstered optimism that demand for raw materials will strengthen. 
Money managers expanded their combined net-long positions across 18 U.S. futures and options by 25 percent to 671,915 contracts in the week ended Jan. 3, Commodity Futures Trading Commission data show. Bullish bets on cotton rose the most since April 2009 and those on coffee doubled. Crude-oil holdings reached a three-week high.[...] 
The economy is back,” Chris Rupkey, the chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd., wrote in a report Jan. 6. “Despite some evidence of slowing in places like Canada, Brazil, China, and of course Europe, the prospect for continued growth in the U.S. is a bright one.
Market Shrinks First Time Since '09 on U.S. Buybacks, Sales

Jan. 17 (Bloomberg) -- Stocks are getting scarcer in the U.S. for the first time since the bull market began as companies cut share sales to the lowest level since 2006 and buy back equity at the fastest pace in four years
Amgen Inc., Hewlett-Packard Co. and 1,971 other U.S. companies repurchased $397 billion of stock last year, while they issued $169 billion of new equity, data compiled by Birinyi Associates Inc. and Bloomberg show. The combination reduced the Standard & Poor’s 500 Index divisor, a measure of outstanding shares, by 0.6 percent last quarter, the first drop since March 2009. 
Shrinking supply supports prices and shows valuations are so low that executives would rather buy back shares than spend the cash to expand, according to Columbia Management Investment Advisers LLC and USAA Investment Management Co. Bears say dwindling growth prospects will limit gains and deter investors who pulled money from stock funds for eight straight months through December, the longest stretch in at least two decades. 
“Having that equity base shrink and starting from a relatively pessimistic point usually sets up pretty well in the long term,” Laton Spahr, who helps oversee $325 billion as a money manager at Columbia Management, said in a Jan. 11 phone interview from Minneapolis. “It gives you some hope that valuations have perhaps bottomed.”
Speculators Raise Metals Wagers by Most Since July: Commodities
Jan. 23 (Bloomberg) -- Speculators raised bets on higher metal prices by the most since July, turning bullish on copper for the first time in four months on signs of growth in U.S., increasing demand in China and more confidence in Europe. 
Money managers expanded combined net-long positions in five industrial and precious metals by 13 percent to 152,665 futures and options in the week ended Jan. 17, Commodity Futures Trading Commission data show. They are now the most bullish on copper since August. Traders increased holdings in silver, the precious metal most used in industry, to the highest since November. Wagers on rising gold prices advanced the most in two months.  
[...]“It’s a play on a possible demand recovery,” said Spencer Patton, the Chicago-based chief investment officer for Steel Vine Investments LLC. “People are now accepting gradually that the Europe situation is not that terrible, and China will probably have a soft landing. And the icing on the cake is the growth in the U.S.
Gold Bulls Ascendant Amid Biggest Rally Since 1980: Commodities
Jan. 27 (Bloomberg) -- Gold traders are bullish for a fourth consecutive week, betting that the Federal Reserve’s pledge to keep interest rates low until late 2014 will extend the metal’s best start to a year in more than three decades. 
Nine of 15 surveyed by Bloomberg expect prices to gain next week. The value of gold held in exchange-traded products jumped $3.9 billion on Jan. 25, the most since October, as the central bank laid the groundwork for a possible third round of asset purchases, data compiled by Bloomberg show. Lower interest rates increase the appeal of bullion because it generally earns investors returns only through price gains. 
Hedge-Fund Bulls Add to Bets as Rally Accelerates: Commodities
Jan. 30 (Bloomberg) -- Hedge funds increased wagers on rising commodity prices to the most in two months and the rally in raw materials accelerated as the Federal Reserve pledged to keep borrowing costs low for three more years. 
Money managers raised combined bullish positions across 18 U.S. futures and options by 13 percent to 742,902 contracts in the week ended Jan. 24, Commodity Futures Trading Commission data show. The so-called net-long position in copper jumped 53 percent to the highest since August and in silver by 22 percent to the most since September. Speculators also expanded bullish bets in sugar, soybeans, cotton, gold, gasoline and crude oil. 
Facebook Files to Raise $5 Billion in Biggest Internet IPO
Feb. 1 (Bloomberg) -- Facebook Inc., the social-networking website that began about eight years ago in a Harvard University dorm, filed to raise $5 billion in an initial public offering in what would be the largest Internet IPO on record
Facebook, which now boasts more than 800 million users, didn’t specify the number or price of shares it will offer in a regulatory filing today. The $5 billion amount is a placeholder used to calculate fees and may change. The Menlo Park, California-based company hired Morgan Stanley, JPMorgan Chase & Co., Goldman Sachs Group Inc., Bank of America Corp., Barclays Plc and Allen & Co. to manage the IPO. 
Co-founded in 2004 by then 19-year-old Mark Zuckerberg, Facebook has grown into the dominant social-networking company, squelching competitors such as MySpace Inc. Revenue in 2011 surged 88 percent to $3.71 billion, with about 85 percent coming from advertising, according to the filing. 
“Investors are still very much willing to pay up for growth,” Paul Bard, director of research at the investment- advisory firm Renaissance Capital LLC in Greenwich, Connecticut, said before the filing. “There’s just phenomenal interest in this company and its potential.”
Facebook is considering a valuation of $75 billion to $100 billion, two people with knowledge of the matter said last week. At the high end of the range, that would value Facebook at 26.9 times trailing 12-month sales, more than double Google Inc.’s valuation when the search-engine operator went public in 2004.
Net income last year surged by almost two-thirds to $1 billion, the filing showed. Last year, Facebook said it expects U.S. regulators to require that it disclose financial results by April 30, 2012, if the company hasn’t gone public by then. Facebook decided to wait until 2012 for its IPO to give Zuckerberg more time to gain users and boost sales, people familiar with the matter said in 2010. 
Carry Trade Rallies Like '09 as Volatility Ebbs Amid Threats
Feb. 13 (Bloomberg) -- In the $4 trillion-a-day currency market, traders calmed by a flood of central bank money are leaving safety for riskier bets against a background of Greece’s potential default and threats of nuclear weapons in Iran. 
Borrowing in dollars or yen to buy high-yielding Brazilian reais and Mexican pesos has returned 5.5 percent this year, the best start on record, and reversing last year’s 15 percent loss, the UBS AG V24 Carry Index shows. Market volatility dropped last week to the lowest since August 2008, as measured by a JPMorgan Chase & Co. index. 
Increasing trades that depend on stability underscores growing confidence that the global economy and financial system will withstand shocks as central bankers blanket the world with cash. It’s also proving a challenge for emerging markets such as Brazil, where policy makers renewed purchases of dollars to keep the real from strengthening too fast and damaging growth. 
“There’s less nervousness in the market in general,” Jose Wynne, the head of North America foreign-exchange research at the investment banking unit of Barclays Plc, said in a Feb. 7 telephone interview. “Now that the central banks are pumping on one side of the system, you have people jumping on carry trades everywhere.”
Speculators Lift Wagers to Highest Since September: Commodities
Feb. 13 (Bloomberg) -- Hedge funds increased bets on rising commodity prices to the highest since September on mounting confidence that growth in the U.S. will strengthen demand. 
Money managers boosted their combined net-long positions across 18 U.S. futures and options by 13 percent to 929,199 contracts in the week ended Feb. 7, Commodity Futures Trading Commission data show. That’s the highest since Sept. 20. Bullish wagers on copper rose to a six-month high, and soybean holdings jumped by the most this year. 
The Standard & Poor’s GSCI Spot Index of 24 commodities rose to a six-month high on Feb. 9, a day after the MSCI All- Country World Index entered a bull market, as indicators signaled accelerating growth. Fewer Americans than forecast filed claims for jobless benefits in the week to Feb. 4, and consumer confidence rose to a one-year high. Investments in commodities expanded for a seventh week, the longest streak since February 2009, data compiled by Bloomberg show. 
“The improving economic data, not just in the U.S., we’ve seen better data in Europe as well, has put recession fears on the back burner,” said Anthony Valeri, a market strategist with LPL Financial in San Diego, which oversees $330 billion of assets. “That augers well for commodity demand.” 
David Bianco Hired By Deutsche Bank To Complete Trinity Of Perma Bull

Gold Bulls Expand as Billionaire Paulson Says Buy: Commodities
Feb. 17 (Bloomberg) -- Gold traders are getting more bullish after billionaire hedge-fund manager John Paulson told investors it’s time to buy the metal as protection against inflation caused by government spending.          
S&P 500 Cheapest to Bonds as Zero Rates Boost Spending
Feb. 21 (Bloomberg) -- The Standard & Poor’s 500 Index is approaching the cheapest level ever compared with bonds as Federal Reserve Chairman Ben S. Bernanke’s zero-percent interest rates drive investors and companies from cash. 
Profits that doubled since 2009 pushed the index’s so- called earnings yield to 7.1 percent, close to the highest on record when compared with the 10-year Treasury rate, according to data compiled by Bloomberg since 1962. American companies have boosted capital spending 35 percent over six quarters, the most since 2006. 
Conditions are almost ideal for equity investors relative to all other investments,” Keith Wirtz, who oversees $14.6 billion as chief investment officer for Fifth Third Asset Management in Cincinnati, said in a Feb. 14 telephone interview. “The Fed’s keeping rates low for the foreseeable future to try to stimulate the environment for employee hiring and business activity. What does that mean for capital markets? Savers are not being rewarded.”        
S&P 500 Gets Cheaper as Record Profit Restores Trillions
Feb. 23 (Bloomberg) -- Profits in the Standard & Poor’s 500 Index are rising faster than its price, leaving the gauge 9 percent cheaper than it was in April even after American equities climbed within 0.1 percent of last year’s high. 
The S&P 500 rose 0.4 percent to 1,363.46 today following a rally since October that added as much as $3.2 trillion to share values, according to data compiled by Bloomberg. While the index is just shy of its 2011 peak of 1,363.61, expanding income has pushed the price-earnings ratio to 14.1 from 15.4 in April. 
Economic growth that has been slower than any post- recession period since at least the 1940s is keeping investors from paying more for earnings even after stocks doubled in three years. The best January for the S&P 500 in 15 years has coincided with a decline in New York Stock Exchange trading volume to the lowest level since 1999 and record deposits with investment-grade bond funds. 
The world is profoundly underinvested in U.S. equities,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a phone interview on Feb. 21. His firm manages $300 billion. “The public is bombarded with all these negatives. Greece this, Portugal that, dysfunctional governments. The retail investor is frozen.”

Bullish Futures Exceed One Million Contracts: Commodities
Feb. 27 (Bloomberg) -- Bullish commodities futures rose above 1 million contracts for the first time in five months as U.S. growth prospects improved and Goldman Sachs Group Inc. predicted further price gains. 
Hedge funds and money managers boosted combined net-long positions across 18 U.S. futures and options by 7.3 percent to 1.03 million contracts in the week ended Feb. 21, Commodity Futures Trading Commission data show. That’s the highest since Sept. 13. Bullish wagers on gold climbed to a five-month high, and bets on crude oil rose to the most since May. 
The Standard & Poor’s GSCI Spot Index of 24 commodities capped its biggest weekly increase of the year last week, touching a nine-month high on Feb. 24. U.S. consumer confidence rose more than forecast in February, and new-home sales topped estimates. Goldman reiterated an “overweight” recommendation on raw materials on Feb. 22.
The U.S. is showing better signs of self-sustaining economic activity,” said Michael Strauss, who helps oversee about $27 billion of assets as chief investment strategist at Commonfund in Wilton, Connecticut. “What we see is reasonable global growth this year, which should be supportive of gains in overall commodities.”
And, to conclude with the icing on the cake:

 (thanks to my friend SS for sending me the Barron's cover)

1 comment:

alternative investment said...

Things are way too bullish now. Investors seem to be ignoring the huge macro-risks out there. The Eurozone crisis could blow up any day, and Israel could attack Iran within the next couple of months.