Rosenberg: 4 Sign of Investor Complacency

Ever wary of market risks, David Rosenberg of Gluskin Sheff highlights 4 signs of investor complacency as the equity market soars to new highs on a near daily basis:

    • The Investor’s Intelligence Survey is flashing 52%, doubling in 6 months and at a two year high.
    • Even the usually more dour AAII poll of individual investors shows a higher share of bulls than at any point in the last two years.
    • Lipper reported that flows into equity funds have been a whopping $14.9B in the past three weeks, the largest for any such period since 2001.
    •  The S&P 500 has traded up to a 14X PE multiple (though it is likely higher than that since the double digit growth estimates for the second half of the year are ripe for cutting) is at the high end of this cycle’s range and at the level that touched off the interim peak last Spring (the market looks “fairly valued” because consensus EPS projections are for a 10.3% YoY profit surge in Q3 and +16.7% in Q4…with sales growth at 2-4% at best, these numbers will be next to impossible to attain without some massive cost-cutting).

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • BHB

    Love Rosey’s commentary. Glad he is not making recession predictions. I think he said he was 99% sure of a recession in 2012 (said on CNBC in late 2011). He should just stick to various indicators and let people predict if they want

  • Boston Larry

    Even though so many are bullish, a lot of folks are looking for a correction, and so far for the past few weeks, the market will not oblige, at least not yet. The market volatility is so serene that it is downright eerie.

  • Blobby

    The longer it takes the bigger the correction..
    What will be the trigger though?

  • Boston Larry

    The trigger just might be any bad news out of Europe that would reverse the upward trend of the Euro vs. the USD. The Euro has been on a tear lately, and that has paved the way for higher equities.

  • http://pragcap michael schofield

    Considering all the people on the sidelines, the piling in may just be starting.

  • http://pragcap michael schofield

    Once the media starts broadcasting Dow 14000 things could get insane since the dow is what retail focuses on. Buy the dips

  • Andrea Malagoli

    The only trigger that will matter for the stock market is when the Fed will signal its intention of exiting the asset purchase program. Until then, fundamentals will not matter.

  • hangemhi

    I couldn’t agree more. I keep hearing “record WEEK of inflows” – but without the context that money has been flowing out for years, we’re going to need years or record inflows to get back to even. We’re also no where near peak bullish sentiment – there may be an interim correction at some point, but this sure feels like a bull ready to run. Man on the street sentiment is probably “huh? what? there’s been a stock market rally. Oh, you mean Apple, yeah but look at it now????”

  • http://pragcap Michael Schofield

    You bet, Andrea. We could be looking at the beginning of the next bubble. Wooo-hoo!

  • Johnny Evers

    But if the people on the sidelines with cash all buy stocks, won’t the people who sell the stocks be the ones on the sidelines holding cash.
    Stock market rallies are caused by people who hold stock selling them back and forth to each other and driving up the value.

  • http://pragcap michael schofield

    My take on this- depends on the amount of motivation. People with cash are thinking what could have been, those with some crappy 1.5% bond start losing money and stocks running away. Those people may be highly motivated and will pay up. Cash supply may not change but prices do.

  • Anon

    right Michael – its the “relative eagerness” that makes prices move – if some investor (say an insto algo with no comcept of “value”) is happy to comstantly pay a few cents more than the last guy to induce someone else to sell, then the price rises and equilibrium is maintained (i.e. cash on sidelines hasn’t changed)

    Of course, eventually investors inexplicably stop wanting to pay the higher price. Some investors find themselves holding more shares than they want and all at once need to induce a BUYER by accepting a lower price than the guy before them.

  • Andrew P

    I expect the market to just go on and on like this until there is a geopolitical oil shock, which happens with no warning at all. Then all hell breaks loose.

  • Andrew P

    The Fed will never exit. QEternity really is forever. Think oil shock.

  • hangemhi

    Our old friend B Ferro happened to write about this 2 days ago (my name links to the article).

  • Gary_UK

    Cullen appears to have forgotten that the markets are not making new highs, perhaps he meant new recovery highs.

    Easy mistake to make.

    It’s the money supply, and Fed balance sheet, and govt deficits and food stamp usage perhaps that you were thinking of.

  • Gary_UK

    Andrea, congrats.

    That’s the funniest comment I’ve read for ages.

    Good luck to you.


  • Gary_UK

    Tick tock, we wonder what implement will be used to dig himself out of the trumpet-blowing hole someone dug himself into just last week.

  • bart
  • http://yahoo Robb

    There’s a sucker born every minute. You’re waiting for sucker money? Wait until they’re outa diapers before you break the kid’s the piggy bank!

  • eagle1003

    Why is it that those who see themselves as investors, are not jumping for joy that the market is rising and approaching it’s all time high? That’s easy to answer when one considers how few are actually making any money because they are waiting for better “fundamentals” before diving in. I guess that is why there is a phrase known as “the dumb money”.