It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. (Mark Twain)
Lance Roberts recently pondered in Bear-ly” Extant that
The extraordinarily low level of “bearish” outlooks combined with extreme levels of complacency within the financial markets has historically been a “poor cocktail” for future investment success.
The “proof in the pudding” is apparently this Investors Intelligence chart showing the near extinction of the bears:
To support his implicit thesis, Roberts adds this quote from one Pater Tenebrarum:
It is a bad sign for the market when all the bears give up. If no-one is left to be converted, it usually means no-one is left to buy.
Roberts’ chart only goes back to 1995. Had he gone back another four years , he might have noticed the false signals of 1991 and 1992. But no worry, John Hussman made sure you got this other “crucial” info:
Last week, Investors Intelligence reported that the percentage of bearish advisors has dropped to a 27-year low of 13.3%, a level last seen in 1987 a few months prior to the market crash of that year.
Hussman stopped at 1987. Had he gone back another four years, he might have noticed the 1983, the 1984, the 1985 and the 1986 false signals which, for those who sold on the shortage of bears, carried inconvenience of making them miss a doubling in the S&P 500 Index, in spite of the “fact” that no-one was left to be converted.
Not to dismiss the market risk suggested by the current hibernation period, the fact is that the II bear reading, though interesting and highly mediatized, is incomplete and historically not an infallible indicator. It is in fact (somewhat) better to look at the II bull/bear ratio (or bulls minus bears ratio) which I have previously analysed back to 1980:
I have easily identified 11 periods when the “contrary” indicator rose to cross the extreme level (bearish) which were followed by strongly rising markets
For complete disclosure, also called thoroughness, and your own analysis, here’s the chart (courtesy of Ian McAvity) that I used for my analysis, this one going back to 1980:
My red arrows identify the extreme positives (bearish) signals while the red circles show the rare negatives (bullish) occurrences. As I observed in my 2010 analysis
Overall, never mind the extreme positives [bearish], they are essentially useless. The extreme negatives (bullish) are few but generally very good although some require patience and staying power.
Ed Yardeni has the up-to-date charts:
I would rather have my ignorance than another man’s knowledge, because I have so much more of it. (Mark Twain).