Markets Reach Opposite of Euphoria: Slapped with Ugly Stick

By Mike Williams

In short, we’re setting bearishness records.

This week, the batch was joined by the measure of cash in mutual funds.  US managers have raised the proportion of their portfolios in cash to 5.4% – that’s the third highest percentage since 2009, according to the latest Global Fund Manager Survey from Bank of America Merrill Lynch.

The AAII bullish reading released last Thursday was 17.9%, and that was before the shellacking on Friday.

It’s the lowest reading for many, many years – over 82% of respondents say they no longer feel good about the market.  

In fact, it’s lower than during the previous two bear market end points; February 2003 and March 2009.   

The Toughest Lesson

There are LOTS of tough lessons in building wealth over time. 

We are currently experiencing one of the more difficult ones.  It’s about standing still when all around you is leading you closer to the ledge every day.  Hell, even I was wondering if we had any screwdrivers to open the office windows this morning.

I’m kidding.

What is certain is that I have significantly increased my daily intake of TUMS.  And on that front I’ve made a serious decision: I prefer the grape and orange ones.

In time we have to realize that these periods of price action come and go – they do not stay. 

As simplistic as it sounds, massive flows of emotions do not alter the long-term upward slope of growth. We’ve seen too many of these to think otherwise.  

Remember, not a single world’s end prediction has actually been correct.  We suggest that this time is no different – even though it’s ugly out there.

And Speaking of Ugly…

Here is a chart showing past previous ugly starts to the year. 

There have been several – most ending up far better than the first days or month led the crowd to believe they could:

Euphoria Graph

Note: There were quite a few that started out very poorly and indeed found a way to recover. 

In fact, if you take a pencil to it, you might find that if you had been unlucky enough to only buy when all those ugly years were about to start – you would still have ended up, over time.

In Summary

The bears are out in force, stalking prey. And they’ve had a great couple of weeks no doubt filling themselves by gorging on all the fear. 

We suspect – as tough as it may be to conjure up why given all the headlines – that they will be pressed back into hibernation sooner than expected.   

The data is all clear: The masses are more than happy to give up quickly and run to the hills, swearing off stocks again “until it is safe”….which is Swedish for “more expensive.”

Fears are high (and getting higher) and prices are low (and can go lower). And the future is unknown and it scares the hell out of anyone who focuses on that too much. 

And that’s how all lows have looked and felt – since the beginning of time. 

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