Eternal Bullishtness and the feckless mind

(I think Alan Abelson said it best when he opined that: 'We'll happily abandon our nagging negativism on the stock market when everyone stops saying it's time to buy because everyone's bearish.'- AM)

Posted by Neil Hume on Jan 19 15:21
FT Alphaville

A surprisngly hopeful consensus is the title of the latest note from Teun Draaisma. But it is not the Morgan Stanley strategist who is positive but the 250 clients who turned up to his recent Global Insights Day, only to be forced to partake in an interactive vote.

And the picture that emerges is surprisingly bullish. A variety of questions focused on the possibility that we are facing a Japan-style period of low growth and inflation, little policy traction and ever falling bond yields. Only 4% believe we are in Great Depression 2 (GD2). Only 13% expect a deflationary downward spiral. 84% think the equity bear market will end in 2009 or has already ended.

74% of respondents prefer equity (26%) or credit (48%) markets as best asset class in 2009. Only 1% believes the S&P 500 will end the year below 600, while 73% expect it to be above 800. 86% believe bonds are in a bubble. 61% expect Brent oil to be above US$50/bbl at the end of 2009, 87% expect bad deflation will be avoided.

Only 9% thought the dollar would be below 1.50 to the euro by the end of 2009. The US was also by far the preferred equity market. Europe was the least popular. 28% thought we saw the low point in this bear market in 4Q08 (on the S&P 500). Just 16% expect the lows to come in 2010 or later. Most expect the trough in 2009, split evenly between 1H (29%) and 2H (27%).

All of which concerns Draaisma as:

These findings question the view we often hear, that “everybody is so bearish, it should be time to take the other side”.

Indeed, betting against Draaisma’s clients could be a profitable strategy.The consensus was too optimistic at our conference 12 months ago. The crowd did well on sectors by choosing pharma as the preferred sector last year, and also judged correctly that decoupling was unlikely. However, the consensus view was much too benign on all other things, as only 19% thought the S&P 500 would be below 1300 at end of 2008; only 26% thought the bull market had already ended; only 16% expected bond yields below 3.5%; equities were the preferred asset class, government bonds not popular; EM the preferred equity market, and Japan the least preferred.