This week I’d like to coddiwomple through central bankers, their flawed process for making pol...
02/07/2008 12:00 am EST
February 7, 2008
Orlando, FL.-Still bullish? Are you kidding?
The Russell 2000 small-cap index and the NASDAQ Composite index, along with many once-hot global markets, are down more than 20% from their peaks. That's bear market territory.
The Standard & Poor's 500 index and the Dow Jones Industrial Average are just a few percentage points behind. The economy appears to have fallen out of bed in January, and many once-bullish advisers are throwing in the towel.
Not the users of MoneyShow.com. In our latest survey, the active, sophisticated investors who use our site maintained levels of bullish sentiment similar to what they showed last fall. And only a small minority expects the US economy to go into a recession. See results here.
Some 16% of the individuals polled described themselves as very bullish-i.e., they expect the S&P 500 to rise more than 10% by December 31-while another 44% looks for the big-cap benchmark to increase less than 10%. That's a total of 60% bullish, very close to the results of our most recent surveys last year.
The bears, while still in the minority, have grown in numbers-to 26% of respondents from 17% to 18% last year (see Table).
|Investors' Survey||Investors' Survey||Investors' Survey|
|Sentiment||February 2008*||September 2007**||July 2007**|
|Large US Stocks||21%||29%||25%|
|Small US Stocks||8%||13%||10%|
*Through the end of 2008
**Through the end of 2007
What explains this steadfastness, despite all the gloom and doom in the media and on Wall Street and very real signs of economic distress?
Part of it must be attributed to their more sanguine view of the economy: only 16% expect the US to go into a recession, while 45% look for slower gross domestic product growth. (A surprisingly large 39% think GDP growth will actually increase.)
Also, the vast majority (71%) expects the Federal Reserve to lower short-term rates even further. (The poll was taken between January 28th and February 4th, around the time the Federal Open Market Committee cut short-term rates by ? point.) Despite all the criticisms of Fed chairman Ben Bernanke they understand that aggressive rate cuts usually result in higher stock prices over time.
And clearly many of these MoneyShow.com users are battle-hardened investors, who are in it for the long haul and know well that bear markets can be opportunities to pick up great stocks on the cheap. (An informal survey of a large audience at Wednesday's opening ceremonies for the World Money Show here in Orlando revealed a remarkably similar breakdown of opinion.)
This group apparently is less likely to cut and run when markets are bad. As the old saying goes, when the going gets tough, the tough go shopping.
But what are they buying? Here the results mark an interesting change from previous surveys. Some 39% think commodities will be the best-performing asset class between now and year-end. That's a huge increase from September, when a mere 17% picked hard assets as their investment of choice.
To be sure, some of this may be just, well, performance chasing (or trend following, to put a kinder spin on it). Commodities have been among the top performers, with gold setting new highs, oil off its $100-a-barrel record and agricultural commodities soaring.
But if you dig deeper into the numbers, you'll see a real logic behind the choice. An overwhelming 69% of our respondents think inflation will increase by the end of 2008. If we avoid recession, see more rate cuts, and inflation takes off, that would clearly be good for commodities.
But it wouldn't necessarily be good for foreign stocks, last year's darlings. The big market winners for the last several years have been losing ground among our users, slipping from 39% favorites last May to 22% now, in a virtual dead heat with large-cap US stocks, which are preferred by 21% of the people polled.
Obviously commodities have gained at the expense of stocks, which are generally less popular than they were last year. Small-cap stocks, which lost their luster long ago, remained in the single digits, along with bonds, real estate, and cash.
The new MoneyShow.com sentiment indicator was presented here at the World Money Show and on MoneyShow.com. Some 435 respondents were drawn from MoneyShow.com's Investors subscriber list, comprising self-directed individual investors. The maximum margin of error is within 4.5 percentage points of the proportion reported using a 95% confidence level.
Our new survey flies in the face of much more sober numbers put out by the American Association of Individual Investors, which polls its members weekly on its Web site www.aaii.com.
That group has been decidedly downbeat, with bullish sentiment reaching multiyear lows under 20% a couple of weeks ago.
And truth be told, our users' sunny forecasts last year were chastened by the cold, gray winter of the subprime crisis and credit crunch, which trimmed markets' gains dramatically in the dying days of 2007.
Over time, however, it pays to keep investing. The chances that we can avoid a full-fledged recession and bear market are getting slimmer, but maybe in the long run MoneyShow.com users know something the rest of us don't.
Howard R. Gold is executive editor of MoneyShow.com. The opinions expressed here are his alone and do not necessarily reflect the views of InterShow.
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