February 23, 2013 at 10:38 AM EST
Astonishing Disconnect Between Investors and Reality!
Saturday, February 23, 10:30 a.m. Studies and money flow in and out of mutual funds show that many investors followed the historical pattern of holding on all the way down in the 2007-2009 bear market, even buying more on the way down, and only after the bear market had ended began pulling money out. That [...]

Saturday, February 23, 10:30 a.m.

Studies and money flow in and out of mutual funds show that many investors followed the historical pattern of holding on all the way down in the 2007-2009 bear market, even buying more on the way down, and only after the bear market had ended began pulling money out.

That is, even as so-called smart money began piling back into the market when the bear market ended in March, 2009, launching the new bull market, retail investors continued to pull money out in each of the four years since the new bull market began.

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At least that was not surprising. 

As I wrote in my books, the clear long-time historical pattern is for public investors to pile into bull markets only after they have been underway for several years, make significant profits for quite awhile, and get carried away with enthusiasm and confidence that it will go on forever.

Not bothering to learn more about how markets work, they then don’t understand what’s going on when the market turns sour, and just hold on until losses become large and unbearable. Bailing out at the bottom and disgusted with the losses, the tendency is then to blame the crooked market, or the stupid government, or anyone but themselves, and ‘swear off the damned market for good’ (not coming back until the next bull market has been underway for quite some time).

But it is surprising to what degree they pay no attention to what is actually going on once they have bailed out and ‘sworn off the market for good’.

A series of surveys by Bloomberg/Franklin Templeton Investments shows that in 2010 a surprising 66% of investors thought the market had been down or flat in 2009, even though the S&P 500 had been up 26.5%. In subsequent surveys, 48% thought the market had been down again in 2010; and 53% thought it had been down in 2011, even though it had also been up in each of those years.

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It’s understandable. As I said in my weekend newspaper column, the recovery of both the economy and stock market has been a stutter-step affair since 2009, with stumbles and set-backs each spring that keep investors that are out bearish, and those that are in nervous.

Don’t Expect Too Much From The Housing Recovery!

The charts are showing home prices dropped an average of 31% nationally from their bubble peaks.

The economic reports on the housing recovery over the last year have been impressive.

But be careful what you read into some of the sound bites that result from them.

For instance, existing home sales were up 0.4% in January to an annual rate of 4.92 million homes sold, the 2nd highest pace since 2009, and for all of 2012 were the most since 2007.

The last report of the Case-Shiller Home Price Index showed home prices were up 5.5% year-over-year in November, the best year-over-year increase since 2006.

So does that mean the declines are over and we’re back to being able to expect double-digit annual home price increases that are on the way back to previous highs?

Not necessarily. Keep in mind that the previous highs were in the most dramatic housing bubble in history.

As the top chart shows, home prices have declined 31% approximately to their levels of 2003-2004. But in 2003-2004 home prices were already in a bubble, significantly above their historic norm.

House prices have been deflating for six years, according to the bellwether Case-Shiller index

The next chart shows that there have been three housing bubbles since 1975, an average of 12 years between them, the most recent one being a monster.

Home prices have fallen back to their level in 2003-2004. But as this chart also shows, home prices in 2003 (adjusted for inflation) were already well above the peaks of the previous two bubbles.

So if prices have only come down to those of 2003, is housing going to begin a new leg up from here, with present price levels already higher than at valuations seen at previous bubble peaks?

Something to think about.

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To read my weekend newspaper column click here:  How Long Can Economy’s Sweet Spot Last This Time-

Subscribers to Street Smart Report: In addition to the numerous charts and analysis in the ‘premium section’ of this blog post, the mid-week Market Update from Wednesday is in your secure area of the Street Smart Report website.

Yesterday in the U.S. Market.

A very positive bounce-back day, but not enough to avoid a negative week. Trading volume was average at 0.7 billion shares traded on the NYSE, 1.5 billion on the Nasdaq.

The Dow closed up 119 points, or 0.9%. The S&P 500 closed up 0.9%. The NYSE Composite closed up 1.0%. The Nasdaq closed up 1.0%. The Nasdaq 100 closed up 1.0%. The Russell 2000 closed up 1.2%. The DJ Transportation Avg. closed up 1.2%. The DJ Utilities Avg closed up 1.1%.

Gold closed up $3 an ounce at $1,580.

Oil closed up $.47 a barrel at $93.31.

The U.S. dollar etf UUP closed up 0.1%.

The U.S. Treasury bond etf TLT closed up 0.1%.

Asian markets closed mixed in their last session of the week.

The Asia Dow closed down 0.1% Thursday night (Friday in Asia).

Among individual Asian markets:

Australia closed up 0.8%. China closed down 0.5%. Hong Kong closed down 0.5%.  India closed down 0.1%. Indonesia closed up 0.4%. Japan closed up 0.1%. Malaysia closed up 0.4%. New Zealand closed up 1.1%. South Korea closed up 0.2%. Singapore closed up 0.1%. Taiwan closed down 0.1%. Thailand closed up 0.8%.

Yesterday in European Markets.

European markets also bounced back yesterday from the previous day’s plunge. The Europe Dow closed up 1.1%. Among individual countries: The London FTSE closed up 0.7%. The German DAX closed up 1.0%. France’s CAC closed up 2.2%. Greece closed up 0.7%. Ireland closed up 2.0%. Italy closed up 1.4%. Spain closed up 2.0%. Switzerland closed up 0.7%.

Global markets for the week.

A mostly negative week. Another big plunge in gold stocks. .


THIS WEEK (February 22)
DJIA14000+ 0.1%
S&P 5001515- 0.3%
NYSE8894- 0.4%
NASDAQ3161- 1.0%
NASD 1002737- 1.0%
Russ 2000916- 0.8%
DJTransprts5943- 0.1%
DJ Utilities478+ 1.2%
XOI Oils1,334- 0.2%
Gold bull.1,580- 1.7%
GoldStcks136.31- 5.3%
Canada12701+ 0.1%
London6335+ 0.1%
Germany7661+ 0.9%
France3706+ 1.3%
Hong Kong22782- 2.8%
Japan11385+ 1.9%
Australia5036- 0.4%
S. Korea2018+ 1.9%
India19317- 0.8%
Indonesia4651+ 0.9%
Brazil56697- 2.1%
Mexico43875- 0.6%
China2422- 4.8% 
LAST WEEK (February 15)
DJIA13981- 0.1%
S&P 5001519+ 0.1%
NYSE8933- 0.1%
NASDAQ3192- 0.1%
NASD 1002764- 0.4%
Russ 2000923+ 1.0%
DJTransprts5946+ 0.6%
DJ Utilities472- 0.4%
XOI Oils1,336- 1.3%
Gold bull.1,608- 3.5%
GoldStcks143.90- 5.6%
Canada12686- 0.9%
London6328+ 1.0%
Germany7593- 0.8%
France3660+ 0.3%
Hong Kong23444+ 1.0%
Japan11173+ 0.2%
Australia5054+ 1.3%
S. Korea1981+ 1.6%
India19468- 0.1%
Indonesia4609+ 2.6%
Brazil57903- 1.0%
Mexico44152- 2.1%
China2545unchgd
PREVIOUS WEEK (February 8)
DJIA13992- 0.1%
S&P 5001517+ 0.3%
NYSE8935- 0.3%
NASDAQ3193+ 0.4%
NASD 1002775+ 0.4%
Russ 2000913+ 0.3%
DJTransprts5911+ 0.9%
DJ Utilities474Unchgd
XOI Oils1,354- 1.0%
Gold bull.1,667unchgd
GoldStcks152.43+ 0.3%
Canada12801+ 0.3%
London6263- 1.3%
Germany7652- 2.3%
France3649- 3.3%
Hong Kong23215- 2.1%
Japan11153- 0.3%
Australia4989+ 1.0%
S. Korea1950- 0.4%
India19484- 1.5%
Indonesia4491+ 0.2%
Brazil58497- 3.1%
Mexico45089- 1.5%
China2545+ 0.5%

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Next week’s Economic Reports:

Next week has a heavy schedule of potential market-moving economic reports including New Home Sales, Consumer Confidence, Durable Goods Orders, the next revision of 4th quarter GDP, etc. To see the full list click here, and look at the left side of the page it takes you to.

I’ll be back with the next blog post on Tuesday morning at 9:25 a.m.

To read my weekend newspaper column click here: How Long Can Economy’s Sweet Spot Last This Time-

Subscribers to Street Smart Report: In addition to the charts and analysis in the ‘premium section’ of this blog post, the mid-week Market Update from Wednesday is in your secure area of the Street Smart Report website.

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