Confusion upon confusion

Confusion upon confusion

Last time, I alluded to the confusion sweeping through society (and the markets).  I noted that the most basic of human identity is gender – and in recent years as the Great Bull Market has been sweeping majestically towards its conclusion, gender identity has become a matter of lifestyle choice, not just set at birth (the idea of which is now so old fashioned!)

Allied to gender identity is sexuality.  I pointed out that the recent remake of Disney’s Beauty and the Beast contains for the very first time an overtly gay character.  This is perfectly understandable in the context of wider inclusiveness of all human types and lifestyles into the fold that has been gathering pace as the bull market rolls on.

And hot on the heels of my  post, I read that Russia is considering banning the film on that very basis. So there are pockets of humanity out there not totally embracing the Western push for including everyone into society.

I mentioned in my last post that schoolchildren are now being asked to ‘choose’ their gender. And right on cue, here is an article in today’s Telegraph: No more separate boys’ and girls’ toilets at primary schools in Glasgow to help pupils who are ‘confused about their gender’.

Of course, it is far easier to implement that policy with few kick-backs in a school but not so where adults meet – in a pub, say.  In the same article, there is a video showing a transgendered woman being refused entry to a women’s toilet in a pub.

Now, the reason I am relating this is not because I have a deep fascination with the subject, but I believe it reflects the extremes that the force of inclusiveness has reached.  And that force is a reflection of the extreme positive social mood that has been attained with new all-time highs in some stock indexes.

So how much farther can this principle be taken? Previously, women were effectively barred from the higher levels of the arts, business, commerce and government.  But not now.  Women hold top positions everywhere (now we have a female Prime Minister and head of the Met).

All of this inclusiveness and rising social mood has been accompanied by rising stock markets propelled by extreme bullish sentiment among investors/traders.

How bullish has sentiment reached?  Here are a few data points;

chart courtesy

This chart shows that professional advisors today are as extremely bullish as they were at the 2007 top (and we know what happened thereafter!). If you line up the peaks in the lower curve with the highs in the index, they align pretty closely.  On this basis alone, a major high is not too far away.

And who are the advisors advising?  It’s the mom & pop retail investors that AAII track – and they have just pumped a record amount into S&P ETFs – right after the Dow has reached the lofty heights over 21,000!  Is this yet one more top indicator?

Another measure of bullishness is the cash-to-assets ratio held by the US mutual funds.  When cash levels are this low, managers are ‘all in’ and as bullish as they ever have been

chart courtesy

Since at least since the 1950s, this ratio never fell below 4% even at the depths of the great collapse episodes. Even at the end of the dotcom crash in the early 2000s, this ratio held at 4%.  Then in 2007/2008, we had the worst stock market collapse since the Great Depression – and the ratio hit a low of 3.5%.

But recently, the ratio has set a new all-time record low at 3%, which is effectively fully invested.  Is there any more room for a major upside phase?

Gold takes a breather

We have been riding the recovery in gold since the lows in December.  We were fortunate to get on board the rally early but with the chart showing signs of fatigue, I decided to take some profits off the table near the $1260 level.  That was a very important resistance level.  Not only was it on the Fibonacci 62% retrace but there was also chart resistance lurking (from the low of November shown by red arrow to left):

With the building mom div, that was all I needed to bank a great profit.  And since then, the market has been falling quite heavily and has broken my blue trendline support.  One of the other clues to expect a decline was the build-up in long futures positions by hedge funds and that made me uncomfortable holding a full long position.

My first target on the downside is around the $1200 area from where a decent bounce should emerge.  But the ‘easy’ money has been made on the way up and a more two-way market will now develop as the excess bullishness dissipates before another leg up starts.

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