A Whole Herd Of Bulls & Nary A Bear At All

Bullish sentiment in stocks at second-highest level ever

Butterfly Effect: Inflation, then High Interest Rates, then Political Tyranny...

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The McAlvany Weekly Commentary

with David McAlvany and Kevin Orrick

A Whole Herd Of Bulls & Nary A Bear At All

July 13, 2021

"Last week, we had the most positive reading on the COT report, that is the Commitment of Traders report, that we’ve had in years. So, while the siren is sounding for peak prices and valuations in US equities, with sentiment being red hot, the opposite is true for gold. We’re putting in a fresh floor, but no one seems to care. The siren that sounds in the gold market is similarly loud and it mirrors the equity market—negatively correlated of course—and ready for higher prices."

— David McAlvany

Kevin: Welcome To the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.

Sometimes a number, Dave, says something completely opposite, I mean, counterintuitively opposite to what it means. And I’m thinking about bullish sentiment. When bullish sentiment is high, usually that is a warning that we’re going to have a collapse.

David: Yeah, it was Nouriel Roubini who years ago described the turkey’s best day as his last day. The day where he’s getting stuffed and fed and he can have everything that he or she wants. And next thing you know, it’s the oven. Well, Investors Intelligence Numbers, they pegged bullish sentiment the second highest level in the recording of the survey. And for some analysts, you look at the bulls and they’re saying, 60.8% of us find that it’s only up and away from here. Things are only going to get better. And we haven’t had that kind of bullish consensus since 1976, the early part of 1976. For others the magic is not in the big print. It’s in the difference between the bulls and the bears. So, the bears are at 15.5%, the bulls at 60.8%, with a greater than 45 point differential. And it’s astounding. There is an inherent warning given when the discrepancy passes 40 points. And 45 is thus something like an air raid siren.

Kevin: Well, and you wonder when greed turns to fear. I remember a story your dad used to tell us. He said, “If I were to throw a pile of Krugerrands on the floor and tell you, you can have as many as you can pick up.” He said, “Greed would make you just jump on that pile and start picking up as many as you can.” But he said, “If there was a 10 foot gorilla with a straight razor behind you, it would turn to fear very quickly.” And so what you’re talking about right now is the greed index, that speculative index, is at a high that we haven’t seen since 1976.

David: That’s right. One thing you forget is a potential cultural issue. You throw a bunch of Krugerrands on the ground, you may have someone in today’s culture say, oh, I’m sorry, I don’t eat chocolate. But yeah, you’re right. Sentiment swings between optimism and pessimism, between greed and fear, and this sort of helpful measure of market sentiment. The Investors Intelligence Numbers, it’s one significant piece in a financial market puzzle. And sometimes it makes me smile. The advisor sentiment report being called investors intelligence.

Kevin: It’s anything but that. But I think of a person who does have intelligence, that probably is one of the best persons to listen to about the everything bubble. I’m thinking of Doug Noland, and our listeners can listen in on that call coming up in a couple of days.

David: Yeah. This Thursday, Doug Noland will consider other significant pieces of the puzzle. And there are many opinions in the money management business, of course, but I think fewer as fully substantiated as Doug’s on what goes into the creation of an epic bubble and what happens once it bursts. It takes a numbers guy—he’s both a CPA and an MBA—but it takes a numbers ...