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Mark Hulbert
Feb. 4, 2011, 12:01 a.m. EST
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By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) "â? The end is near!
But, until then, there's no need to do anything rash like leave the party early.
That, in essence, is the message of a growing number of the otherwise bearish stock market timers I monitor. And, as a contrarian, I am skeptical "â? though it's unclear what a contrarian should therefore expect.
Needless to say, none of the advisers actually articulate their forecast in the caricatured way I put it here. But you'd be surprised how many of those them are nevertheless espousing variations on this theme.
Of course, these advisers have widely varying reasons for their forecasts. Some have begun to say that factors having to do with the much-vaunted Third Year of the Presidential Election Year Cycle will cause stocks to become even more overvalued before the expected bear market begins. Read my Jan. 26 column.
Another example: Advisers who follow the lead of corporate insiders and who, given heavy recent selling by those insiders, have been bearish for some time. But, since insiders act early, some of these advisers are now saying there's no need to get out of stocks immediately.
Yet another example: Long-term bear Richard Russell recently turned bullish upon discovering that dividend-paying blue-chip stocks are good inflation-hedges. Read my Feb. 1 column.
These arguments are reminiscent of those that were popular in the late 1990s, during the build up of the Internet bubble. At least among the nearly two hundred advisers whom I was then monitoring for the Hulbert Financial Digest, many were quite forthright in conceding that the stock market in general, and Internet stocks in particular, were overvalued "â? and that the bull market would inevitably end badly.
Despite these concessions, however, these advisers nevertheless remained heavily invested in stocks, confident that they would be able to go to cash in time to avoid the imminent downturn.
James Montier, a member of the asset allocation team at Boston-based GMO, and author of the 2002 book "Behavioral Finance: Insights into Irrational Minds and Markets,"? has referred to this kind of thinking as a variant of the Greater Fool Theory. That's because advisers who espouse this approach are buying and holding onto their stocks in hopes of finding someone else down the road "â? a Greater Fool "â? to pay even higher prices than those currently prevailing.
By definition, of course, not everyone who plays such a game can win.
How does contrarian analysis view the situation? It's not clear, since the emerging consensus is neither outright bullish nor outright bearish. Reflecting these muddy waters, some sentiment indicators are suggesting that there is too much optimism out there, while others are pointing to high levels of pessimism. Read my Jan. 28 column.
Further making a contrarian's job difficult right now: There is more than one way in which the emerging consensus can prove to be wrong. One way, for example, would be for the stock market to embark right away on a significant correction, followed by strength later in the year. Another would be for a major bear market to begin "â? or for the current bull market to continue for some time with few interruptions.
On one thing, contrarian analysis is relatively confident: It's unlikely that the emerging consensus will unfold in precisely the way that so many advisers are now saying it will.
Mark Hulbert is the founder of Hulbert Financial Digest in Annandale, Va. He has been tracking the advice of more than 160 financial newsletters since 1980.
Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron's.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC's World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What's Working Now.
The only sure conclusion we can take from a very muddled January jobs report is that the crisis in unemployment is still with us, writes Rex Nutting.
12:49 p.m. Today12:49 p.m. Feb. 4, 2011
"Mark Hulbert: Many predict strength now, trouble later http://on.mktw.net/idzeC4" 1:17 a.m. EST, Feb. 4, 2011 from MktwHulbert
"Mark Hulbert: Don't bet on Super Bowl Indicator http://on.mktw.net/gVnv03" 12:18 a.m. EST, Feb. 2, 2011 from MktwHulbert
"Mark Hulbert: A gold bull turns bullish on stocks http://on.mktw.net/eLnk7t" 12:38 a.m. EST, Feb. 1, 2011 from MktwHulbert
"Mark Hulbert: Contrarian indicator with bullish message http://on.mktw.net/i6ShmC" 12:17 a.m. EST, Jan. 28, 2011 from MktwHulbert
"Mark Hulbert: Update on Presidential Election Cycle http://on.mktw.net/ehDJvd" 12:43 a.m. EST, Jan. 26, 2011 from MktwHulbert
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