Soothsayer Consensus (Positive/Bear Market Indicator)
Group Hug Please...Good Times Ahead
We seem to be at a point where there is unanimous sentiment by people who manage money (aka The Smart Money People) and the people who get paid to predict the future of the economy and stock markets (aka The Soothsayers) that the economic future looks extremely bright and that stocks can continue to go up even higher from here. Doug Kass at Seabreeze Partners put together a nice compilation of the mindset of the Soothsayers these days. Essentially, according to Mr. Kass, the Soothsayers are pounding the table that:
- There is no or limited complacency in the capital markets.
- Valuations are elevated, but remain reasonable.
- There appear to be few economic excesses and, as such, no boom from which to bust.
- There is no alternative to stocks.
- The U.S. economy is well positioned to return to average (to above-average) growth, with low-cost energy, manufacturing cost advantages and the wealth effect of higher home and stock prices.
Mr. Kass concludes that “The meme above is consistent and pervasive. After all, the crowd usually outsmarts the remnants (except, of course, at inflection points), so it rarely pays to be proactive. Play the trend, don't fight the tape or question the market's rise and, above all, stay fully invested (if not, you will face career risk). “
It’s been a hell of a ride thanks to the Central Bank induced printing of money and the Soothsayers don’t see any signs that stocks will slow down anytime soon. After rubbing your eyes for a minute, a few things appear to become more clear and Mr. Kass articulates them very nicely:
- Fear has been driven from Wall Street and there is no concern for downside risk.\
- Global economic growth is falling short of earlier forecasts, while a number of regions are flirting with deflation.
- While the shoulders of economic growth have relied on central banker policy, in the absence of regulatory and fiscal reform, QE's impact is now materially moderating.
- S&P profits are estimated to have risen by only about 10% in 2013-14, against a 38% rise in the S&P Index. (The difference is the animal spirits' impact on rising multiples, something everyone now accepts, but none anticipated 18 months ago).
- Though fundamentals remain soft, (with sales and profit growth muted), bulls are self confident in view as share prices propel ever higher.
- Bullish sentiment (measured by Investors Intelligence bull/bear spreads, etc.) is at a historical extreme.
- Shorts are and out-of-favor, endangered (and ridiculed) species.
- There is less to valuations than meets the eye.
The Soothsayers are not morons. They are very highly intelligent people. Unfortunately they’re not very accurate in their prognostications. An almost if you can’t beat’em join’em climate has set in. Usually that doesn’t work out well.