Weekend Reads for Global Investors: The Missing Bears

Regular readers of the Weekend Reads series might recall that in my last post for the series I touched on how economic recovery had been weaker than expected in many parts of the world. Apparently there is something else that is also missing from the market scene: bears. According to a CNBC report, a weekly Investors Intelligence report has indicated that bearishness among market newsletter writers has fallen to 13.3%, the lowest level recorded since 1987. Now that is a powerful combination!

Investor enthusiasm globally is rather obvious. As I was leaving Hong Kong earlier this week for a business trip to London, the Hang Seng Index continued to make new (six-year) highs. The weather in London may be cooler and foggier compared to Hong Kong, but the stock market here is just as hot, if not more. (When economists argue that the market goes up more on sunnier days, they are apparently not thinking about a cross section of global markets.) The FTSE 100 just hit its 14-year high as we speak. Winner of this global competition, however, goes to the bellwether US market. The S&P 500 Index has been hitting all-time highs left and right for some time now.

Morgan Stanley did not miss a beat and promptly issued their headline-grabbing prediction that S&P 500 will reach 3000 . . . in 2020. If you find yourself missing the late Morgan Stanley strategist Barton Biggs, who famously said in the height of the Internet bubble that “the fools are dancing and the bigger fools are watching. . . . I am one of the bigger fools,” you are in good company. Warren Buffet, for that matter, quoted Biggs in his letter to the shareholders this year: “A bull market is like sex. It feels best just before it ends.”

The gap between global economic growth and market performance did not escape the eyes of Mohamed El-Erian. Without exactly tipping his hand, he aptly observed that markets have been “extremely resilient” this summer. Warren Buffet, as my colleague Lauren Foster highlighted last week, has been quietly building a record cash pile. Sam Zell has been the most vocal, saying on CNBC that a stock market correction is coming.

Bill Gross, El-Erian’s former partner at PIMCO, pointed to the reason behind the lackluster economic growth picture in his latest monthly Investment Outlook: “Economic growth depends on the productive use of credit growth, something that is not occurring.” Lack of credit growth has been a universal phenomenon after the bubble bursts. At the recent CFA Institute Japan Investment Conference, Nomura economist Richard Koo compared what we are seeing in the US, Europe, and Japan today to Japan after the burst of the investment bubble in the 1980s.

Keynes would have probably just called it a lack of “animal spirits.”

The Missing Bears

• “Market Bears Now Scarcer than Any Time Since 1987” (CNBC)
• “What Made This Summer Different” (Bloomberg View)
• “Buffett Builds US$55b Green Pile as Individual Investors Cut Cash Holdings” (South China Morning Post)
• “For Wonks Only” (PIMCO)
• “Lessons from Japan: Fighting a Balance Sheet Recession” (CFA Institute Webcast)
• “Warren Buffett: Markets Are Like Sex” (Telegraph)
• “Sam Zell: Stock Market Correction Coming” (CNBC)
• “Stocks vs Bonds: Who Will Win?” (The Short Side of Long)

Sunshine and Stock Market Returns (For Wonks Only)

• “Stock Prices and Wall Street Weather” (JSTOR)
• “Good Day Sunshine: Stock Returns and the Weather” (SSRN)
• “Rain or Shine: Where Is the Weather Effect” (Yale)

Investing

• Does performance matter? On the surface people may think it’s close to the only thing that matters in investing. But that’s far from the whole story. Read “Finance is a Strange Industry” to find out why. (Motley Fool)
• “About David Tice’s 60% Crash Call . . .” (The Big Picture)
• What is the role of merit in a mutual fund manager’s career? (Enterprising Investor)

Retirement

Markets go up and down. Portfolio managers come and go. For people saving for retirement, however, it’s important to keep your eyes on the ball. What is your investment goal? Typically saving enough to cover your expenses in retirement after inflation is always a big part of it. This provides a different angle in evaluating performance. Unfortunately, things do not get easier there either.

• The S&P 500 has reached its all time high, right? This author begs to differ. (Forbes)
• “The Next Generation Will Have It Worse, Most Americans Say“: What’s the worse thing a financial crisis can do? Destroying our collective “animal spirits.” (Wall Street Journal)
• Is the 4% rule too low or too high? It’s not sacred. Everyone needs to understand what it should be for them. (Journal of Financial Planning)

Hierarchy of Needs

• “For Some, ’Tis a Gift to Be Simple” (New York Times)
• “Why Businesses Should Serve Consumers’ ‘Higher Needs’” (Knowledge at Wharton)
• “JPMorgan Hackers Came In the Front Door — in June. Two Months of Mayhem“: Whatever it is that you need, watch your bank account closely. (Bloomberg)
• How easy is it to crack into an Apple iCloud account? The Guardian tried to find out. (Guardian)

Public Speaking

• “Five Tips for Off-the-Cuff Speaking” (Harvard Business Review)
• “A Supermarket CEO and One of the Best Speeches You’ll Ever Hear” (Esquire)

And Now for Some Truly Weekend Reading

• “Taiwanese Investors Favor the Number Eight — and They Pay for It” Shh! It’s not just the Taiwanese… (The Atlantic)

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Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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