Wednesday, July 8, 2009


Here is a screen shot from today's Instapundit blog. I am posting it because it gives me a chance to make an important point about investment crowds.

As you know if you have read my book or followed my blogs I think that an enormous bearish crowd developed in the stock market during 2008-09. It is certainly bigger and more unified in its bearish convictions about the economy and the stock market than any I have seen since 1966. Bearish crowds this big don't disintegrate quickly. And the screen shot above is just one sample of the relentless negative story about the economy that is still being told by the media.

Such stories belie the assertions I have heard from bearish market commentators recently that "everyone is bullish and euphoric" about the stock market. The public is decidedly NOT euphoric. Quite the contrary, it is depressed - much more depressed than is the economy, in fact. It will be years before the psychological damage wrought by the Crash of 2008 is undone.

As a side note I might also point out that the "everyone is bullish and euphoric" theme is a typical mistake made by investors who like to think they are contrarians. They seize on whatever evidence they can find that makes their own prejudices a "contrary" opinion. But one must be careful to fade the public, not some small group of professional market commentators. And there is no doubt in my mind that the public right now is extremely bearish.


  1. Carl, weren'tou bullish from 2007 and way into 2008 (at least until september) ? and since the rebound from the low weren't all the "crowd" talking about the "green shoots" ?

    Of course, public as well as the medias are as volatile as the markets.

    I am a long time follower of your blog ad i admire you work as a trader, but i cannot remember a time where you were a bear. I guess that makes you a part time contrarian.

    back in May june 2007, when i called my broker to sell everything (stocks) and to buy gooves with the proceed, he told me i was insane stupid and far asthe professional crowd is concernend, back then everyting was fine there were no credit bubbles and the subprime mess if it existed was contained"...

    what i don't understand is why you re so surprised abou the bearishness of the people, they've lost most of the life'saving, someties their homes, their jobs...You shouldn't consider this bearishness a sign or whateve but as a new reality...they are not in the mood to increase spending and in a consumer based economy that's a real problem!

    And if some papers insist on tis reality, well tey sometimes tell the truth. This crisis has already cost more than World war 2, but this time there is no Europe to rebuild.

    On the long term, one should thnk about what would be the foundations of the next economic growth !


  2. Carl,

    Does your book carry a disclaimer to the effect that you called bottoms at least a half a dozen times in 07-08 based on your perception of the preponderance of bearish public sentiment?

  3. The lows in bear markets are historically reached when the PE ratio = the dividend yield.
    I dont know where the PE is right now but the last time I looked, (not on a 10 year smoothed basis) it was 59 on the spx and the dividend yield was 2 1/2%.
    When we get the PE into single digits, we will be nearer the end. I am expecting a new low in the next 9 months.
    Saying that, I think your short term trades are great and your daily range predictions are good. - but as the post above says, your bullish time will come but not whilst we are in the middle of a structural bear market.

  4. Unrelenting negative media? Huh?

    The media turned bullish sometime in May, and *started* turning bearish about a week ago.

  5. I think crude oil bottom is imminent (as is a low in the financials and 10y bond yields). I dont disagree with your take on the crowd sentiment for crude, but the price action and location suggest a tradable low is at hand. Have a look at