Despite the rally.
In the wake of the Italian elections, bullish sentiment measured by the American Association of Individual Investors (AAII) plummeted from a high of 41.8 percent down to as low as 28.4 percent last week.
Meanwhile, the Dow Jones Industrial Average continued its bullish march to an all-time high.
This week, AAII bullish sentiment ticked up to just 31.1. This is well below the historical average of 39 percent.
“The Dow’s new record high gave some AAII members reason to believe the current rally will continue,” wrote Charles Rotblutt in a post on Pragmatic Capitalism. “It also heightened concerns other AAII members have about the markets being overbought and due for a pullback in prices.”
The Dow’s record high feels “eerily similar” to the market’s peak in mid-2007 before the global financial crisis, Albert Edwards, the London-based global strategist at Societe Generale, known for his famously bearish stance on equities, said on Thursday.
“Exactly the same jitters abound of a bond bear market and true to form (Federal Reserve Chairman) Ben Bernanke is making the same complacent comments,”, Edwards wrote in a note to clients on Thursday.
U.S. productivity slips less than originally believed, but news on wage-growth front is bleak.
The stock market’s run will result in either a 20 percent correction or a more nasty sell off at some point this year, Marc Faber, publisher of the Gloom Boom and Doom report, told CNBC’s “Closing Bell” on Thursday.
Faber pointed out that it’s been almost exactly four years since the stock market bottomed out. “We’re up very substantially, I think investors who today rush into stocks should be reminded of that,” he said.
Each time more than 45% of stocks have reached these valuation levels in the past 13 years, the market has decided enough is enough and shaken loose. But as we keep being told, it is different this time.
Chart: Morgan Stanley
Reckless money printing by Federal Reserve Chairman Ben Bernanke has pumped up the Dow to a brand new all-time high. So what comes next? Will the Dow go even higher? Hopefully it will. In fact, it would be great if the Dow was able to hit 15,000 before it finally came crashing down. That would give all of us some more time to prepare for the nightmarish economic crisis that is rapidly approaching. As you will see below, the U.S. economy is in far, far worse shape than it was the last time the Dow reached a record high back in 2007. In addition, all of the long-term trends that are ripping our economy to shreds just continue to get even worse and our debt just continues to explode. Unfortunately, the Dow has become completely divorced from economic reality in recent years because of Fed manipulation. All of this funny money that the Federal Reserve has been cranking out has made the wealthy even wealthier, but this bubble will not last for too much longer. What goes up must come down. And remember, a bubble is always biggest right before it bursts.
And the Stock Rally Is Due to Money-Printing
Everyone knows that “too big to fail” banks are bad for the economy. Indeed, even top bankers themselves say the big banks need to be broken up.
Now, the heads of many of the world’s biggest banks are saying that the amount of liquidity which the central banks are flooding into the economy is becoming dangerous.
Agence France-Presse reports:
An influential group of leading world banks warned Thursday that central banks are pumping out too much easy money and markets risk becoming dangerously addicted to ultra-low interest rates.
The Institute of International Finance, which groups 450 banks, said that if central banks continue to flood money into the global economy, then any future bid to get it under control could itself destabilize the financial system.
“These conditions — quantitative easing, very low interest rates — cannot last forever, but the risk is that financial markets have become addicted to them,” it warned.
“The longer central bank liquidity is relied on to hold things together, the more excesses and distortions are being accumulated in the financial system. An eventual unwinding of these excesses will become a destabilizing risk event.”