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Mark Hulbert Archives | Email alerts
Dec. 20, 2011, 12:01 a.m. EST
By Mark Hulbert, MarketWatch
CHAPEL HILL, N.C. (MarketWatch) "” In this season for year-ahead predictions, let me offer one of my own: The world will not come to an end in 2012.
I know, I know"”this puts me directly at odds with the Mayan calendar followers who interpret it to be saying that the world will indeed come to an end next year.
This year, Goldman Sachs Group Inc. is expected to earn its smallest annual profit since 1998.
But, as I often do in these columns, I view the end-times obsession with the Mayan calendar through contrarian-colored glasses. If enough investors start behaving as though the world is about to come to an end, a great buying opportunity will be created.
Just take how investors reacted the last time there were calendar-based predictions of doom: Y2K. Remember that?
Many in late 1999 were hysterical about what would happen at midnight on Dec. 31, 1999, when all the computer programs that recorded dates with two-digit years were going to falsely interpret the next second as Jan. 1, 1900"”triggering any of a number of horrible scenarios, ranging from the collapse of the world's power grid to airplanes falling out of the sky.
The market timers tracked by the Hulbert Financial Digest became incredibly bearish. Consider the average recommended equity market exposure among the shortest-term of those market timers. In the weeks leading up to the end of 1999, there were occasions when this average actually got as low as minus 81.8%"”which meant that the average timer was suggesting that his clients allocate four-fifths of their equity portfolios to going shorting.
That's a breathtaking level of pessimism. In fact, at no other point since 1980, when the HFD began tracking the performance of investment advisory services, have the market timers on balance been anywhere near this bearish.
(By the way, this is a great illustration of why it's so important for contrarians to rely on an objective measure of sentiment. After the fact, it's all too easy for us to rewrite history and conclude that a given period's mood was different than it actually was. Most of us today, when thinking back to the latter part of 1999, probably "remember" it as a period of great joy and euphoria. Who would otherwise imagine it to have contained more bearishness than at any time between 1980 and today?)
In true contrarian fashion, of course, the market soared following that late-1999 spasm of fear. In early and mid December 1999, for example, the NASDAQ Composite index /quotes/zigman/123127 COMP -1.26% was trading in the range of 3,300 to 3,400. By the top of the market in March 2000, in contrast, this benchmark was above 5,000"”representing a nearly 50% increase in three months' time.
To be sure, the market timers' mood today is no where near as dark as it was in late 1999. As measured by the Hulbert Stock Newsletter Sentiment Index (HSNSI), the average recommended stock market exposure today stands at plus 22.9%"”a far cry from the extraordinary bearishness that prevailed when Y2K was the worry du jour.
On the contrary, as I have been reporting recently, the HSNSI's current level suggests too much complacency. ( Read Dec. 8 column )
Still, I get the sense from monitoring the nearly 200 advisers at the Hulbert Financial Digest that it wouldn't take much for their mood to become very sour indeed.
The December-January period historically has been one of the strongest two-month stretches of the year, and if it turns out to be a disappointing one for the market, or worse, then the HSNSI could very well plunge.
If and when it does, then contrarians will be ready to buy.
We're not there yet. But don't be surprised if the sentiment situation changes in fairly short order.
Click here to learn more about the Hulbert Financial Digest.
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.
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Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD... Expand
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. Collapse
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