Bullishness Rampant, But Not Necessarily Disastrously So

From MarketWatch:

Investor optimism over the global economy reached the highest level in nearly six years in August, as money continues to pour into equities, according to the Banc of America Securities-Merrill Lynch August survey of global money managers.

"Strong optimism in August represents a big turnaround from the apocalyptic bearishness of March," said Michael Hartnett, chief equities global strategist at Banc of America Securities-Merrill Lynch Research, in the report which surveyed 204 fund managers who manage a total of $554 billion.

A net 75% of survey respondents believe the world economy will firm up in the next 12 months, the highest reading since November 2003, while confidence about corporate health is at the highest since January 2004. A net 70% of panel respondents expect global corporate profits to rise in the coming year, up from 51% last month.

Meanwhile, average cash balances are at the lowest levels since July 2007, while equity allocations rose sharply between August and July -- from 7% to 34%. . .

Merrill Lynch's Risk and Liquidity Indicator, a measure of risk appetite, rose to 41, the highest in two years, with investors clearing preferring an overweight in emerging markets than any other region.

Some say of the above data that it takes bulls to make a bull market. Others say that this sort of data indicates that it's time for a trend change- whether short-term only impossible to say.

EBR would simply say for now that:

1. Stock market valuations appeared reasonable at the March lows, and appear high now;
2. Too many government gimmicks and media cheerleading must have led too many unserious stock buyers into the market;
3. The stock market peak in November 2003 was quickly followed by an over 10% decline in the averages, but was also followed by much higher prices one year earlier, to be followed by much lower prices 5 years later in November 2008. Take your pick.

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