By Pater Tenebrarum at Acting Man blog
Just pulling your leg, dear reader. The Barron’s big money poll contains about as much originality and contrarian thinking as you can find on CNBC…slightly less, actually.
So what are the big money’s big ideas this time around? They continue exhibit a huge bearish consensus on bonds, which we have in the past flagged as a big contrary indicator (you will notice that we also pointed out their bearish consensus on the Nikkei in this past article – the Nikkei promptly had an explosive rally right after the survey was published). Otherwise they are still “investing by ruler” – in other words, they are simply extrapolating what has happened in the recent past into the future, which is precisely what most Wall Street strategists and most mainstream economists do as well. Not one of these groups will ever identify a turning point in a timely manner.
The biggest bullish consensus is on US large cap stocks with 84% bulls, the biggest bearish consensus (certain to be wrong for the umpteenth year in a row) is on US treasury bonds with 91% bears (!).
Gold aficionados will be pleased to learn that there is a 76% bearish consensus on gold, which provides a nice contrast to the 69% bullish consensus that pertained in October of 2012, just as gold was getting ready to tank big.
There are also only 13% who think it is possible that the US economy could weaken, which makes an imminent recession an almost apodictic certainty. Also, the bullish consensus on the dollar versus euro and yen is at 87% and 79% respectively, so it seems ever more likely that the US dollar’s recent breakout will turn into a bull trap:
There is great unanimity on the economy and the US dollar as well … – click to enlarge.
Politics and Interest Rates
We also find the remainder of the poll quite comical, as it flies into the face of experience with amazing stubbornness. For instance, the respondents are convinced that it will be a positive for the stock market when Republicans win elections. This is somewhere between “patently untrue” to “irrelevant”. In fact, several of the biggest stock market bubbles of the post WW2 era have occurred under Democratic administrations.
Note here that we are not trying to make any assertions as to which party is going to be more congenial to the economy. Generally we believe that both parties are simply slightly different faces of the statist establishment status quo (i.e., the statist quo), with only their emphasis on welfare and warfare slightly different (although the supposedly more welfare statist Democrats are in reality just as prone, if not more so, to engaging in warfare as their Republican colleagues).
For the sake of argument though let us say that a Republican administration would show slightly more appreciation of free market capitalism and be more likely to lower taxes and slow down the growth in regulations (a reversal is of course out of the question). Does this mean that the stock market would rise more than it otherwise would? We would argue that this is by no means assured, as the stock market’s trend is largely determined by the amount of monetary pumping undertaken by the Fed at any given time. The idea that Republican control of the state apparatus is good for stocks may have superficial appeal, but the historical evidence does not bear this out.
Clinging to political myths. In reality, it doesn’t matter much to the stock market which party is in charge and it actually tends to rise a bit more under Democrats than Republicans, on average – click to enlarge.
Even funnier is however the idea that rising interest rates won’t have any effect on the stock market bubble. This contradictory idea must be maintained in order to justify the combination of a positive view of the economy and stocks, and the notion that bond yields will definitely rise this time as a result of a tighter Fed (honest injun, this time it’ll all work out!).
Interest rates have stubbornly refused to rise, in spite of a bearish consensus on bonds of around 90% in every single Barron’s big money poll in recent years.
To be sure, the Barron’s Big Money Poll consensus is not always wrong. For instance, since the respondents are almost always bullish on US stocks, they are (similar to Laszlo Birinyi) right about stocks about 67% of the time (since that is the percentage of time the market spends going up, on average).
In stocks, the signals given by the poll’s consensus are only valuable on the rare occasions when the respondents are bearish, or when their bearishness at least approaches 50%.
That usually means that a really stupendous rally is dead ahead (see e.g. the bearish consensus on the Nikkei at exactly the wrong time in late 2012). To the most recent poll we would however note that an 84% bullish consensus on US big cap stocks is definitely of medium term concern, especially as it coincides with a 91% bearish consensus on bonds. By the same token, an 87% bullish consensus on the dollar combined with a 76% bearish consensus on gold is certainly very good news for gold bulls in the medium to long term.