Two Important News Items

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Because of travel, this was a short week in the office. Nonetheless, a couple of news items deserve highlighting.

With stock prices on many major domestic indexes just off all-time highs, investor enthusiasm has grown stronger and stronger. The Investor Intelligence Advisor Service shows the highest percentage of bulls since the 2007 top that preceded a 57% decline in the S&P 500. The percentage of bears is now the lowest since 1987, just before the market’s 35% crash. The Daily Sentiment Index registered two 93% bullish readings in late-November, the highest in two years. According to The Elliot Wave Financial Forecast: “The only equal or higher readings since the peak of 2007 were single extremes of 93% bulls in February 2011 and 94% in November 2010. In the peak year of 2000, the only comparable extreme was also a lone 93% bullish reading on August 31, 2000…,” virtually the stepping-off point for the second market collapse of the still young 21st century.

Mission’s 2-Mode and 3-Mode equity allocation processes pay considerable attention to investor sentiment. These extreme sentiment readings are a clear negative in those quantitative formulas, currently offsetting other more bullish readings in such areas as money supply and price momentum, thereby leaving the formulas in a neutral zone.

A second news item worthy of note was Time’s naming Pope Francis its Person of the Year. While any pope has a bully pulpit to some degree, this week’s recognition is an acknowledgement that this pope is heard more widely than most, at least in modern times. I have no idea of Pope Francis’s level of financial sophistication; I suspect it’s relatively limited. Nonetheless, he is speaking out on economic matters, and the response he has elicited is testimony to the fact that his message is being heard. His admonition of today’s capitalism for its tendency to accentuate the gap between rich and poor may or may not be an insightful commentary on a system that has created great wealth and progress, much of which has benefited the poor, albeit in far lesser degrees.

As readers of this blog know, I have argued strongly against the super-loose monetary policies of the Federal Reserve. I contend that it is an immoral policy that is stealing from savers–most particularly from retirees–to benefit bankers and the wealthiest 1% of our society that owns a major portion of the assets whose prices are being elevated. The resultant debt burden that will be transferred to future generations will affect rich and poor alike with a financial encumbrance they had no voice in approving.

The relatively small voice of the opposition has clearly not deterred Fed actions. And while the pope is hardly directing his commentary to the Fed, we can hope that his voice will stimulate Fed Governors to consider more carefully the deleterious effects of their choice of winners and losers.