Markets Decline Yet Over-Bullishness Remains

The US markets seem to have finally peaked on the 1st April, the very day where Harry S. Dent turned bullish, and I wrote that very day about this and said that it was the contrarian signal, the last bear to turn to bull, that would mark the peak for equities.

Here are few headlines:
  • Bernanke Gets 75% Approval From Investors in Global Poll
  • Junk Overtakes Stocks as Cash Inundates Funds
  • Birinyi Bullish as Bears With Deja Vu Can’t Wait to Sell
  • Greenspan Says U.S. Stocks ‘Very Cheap’
Followed by the actual reports:
(Bloomberg) May 9, 2012 — Global investors give Federal Reserve Chairman Ben S. Bernanke his highest approval rating since 2009 and expect him to take further action this year to accelerate a revival in the U.S. economy and financial markets.
(Bloomberg) May 9, 2012 — Junk bonds are beating stocks by the most since September, with speculative-grade debt building on last month’s gains while losses deepen in equities, as investors seek a haven amid signs the economic recovery is slowing. 
Junk bonds have returned 8.3 percent this year through yesterday, exceeding the 7.2 percent gain for stocks. [...] Funds that buy speculative-grade debt reported $1.84 billion of inflows in the week ended May 2, with more than 85 percent of the cash going toward U.S. high yield, data compiled by Cambridge, Massachusetts-based EPFR show. That’s the most since the week ended Feb. 15, when the funds recorded $2.25 billion. 
Junk bond returns of 107 percent since the end of 2008 are double the 53 percent gain in stocks worldwide. 
“Look at the alternatives,” said Gershon Distenfeld, who oversees high-yield credit investments at AllianceBernstein LP (AB) in New York. “People are scared of equities. They’re very volatile. High yield looks pretty good on a risk-adjusted basis.”
(Bloomberg) May 5, 2012 — U.S. stock investors, battered by losses in May for two straight years, have never been so sure that history will repeat itself, a sign to Birinyi Associates Inc. that it’s time to buy. 
Equity mutual funds tracked by the Investment Company Institute recorded $16 billion of outflows with less than a week to go last month, on pace for the worst April since at least 1984. More than 34 percent of forecasters surveyed by Investors Intelligence said stocks will fall 10 percent, the highest proportion at this time of year since Bloomberg began tracking the data in 1989. Options that protect against losses in the Standard & Poor’s 500 Index traded at the most expensive level in five years. 
The S&P 500’s 1.9 percent slump through yesterday from a four-year high on April 2 has spurred bears to predict the gauge will mirror retreats of at least 15 percent from April peaks in 2010 and 2011 as economic growth slows. Birinyi, Northern Trust Corp. and Wells Capital Management say increasing investor anxiety is a contrarian sign that will give way to a rally after record profits left shares 10 percent cheaper than a year earlier. 
“Don’t get shaken out by the stories about possible corrections, the similarity to previous years,” Laszlo Birinyi, the founder of Westport, Connecticut-based research and money- management firm Birinyi Associates, who was among the first to suggest buying stocks as the market reached its lows in 2009, said in a phone interview yesterday. “They are just nice background music. My attitude has been this market will continue to surprise you on the upside.”

(Bloomberg) May 1, 2012 — Former Federal Reserve Chairman Alan Greenspan said U.S. stocks offer good value and are likely to rise as corporate earnings increase over time.

“Stocks are very cheap,” Greenspan said today at the Bloomberg Washington Summit hosted by Bloomberg Link, citing “very low price-earnings ratios.”

“There is no place for earnings to grow except into stock prices,” said Greenspan, who served as Fed chairman from August 1987 to January 2006.          

No comments: