The Bull Market in Fear (Cullen Roche)

by Cullen Roche, Pragmatic Capitalism

One thing I’ve really battled with in this industry (and in life) over the years is overcoming emotions. Ā In particular, overcoming fear. Ā If you have a portfolio you’re probably worried about something (to some degree). Ā It’s natural. Ā You’ve accumulated all this savings and you’re worried it might just disappear on a computer screen because of a few bad decisions.

About 5 years ago I began developing strategies that were sophisticated enough that they essentially eliminated this element of emotion. Ā That was a huge break-through for me as it freed me up to focus on other things and stop obsessing over the numbers changing on the computer screen.

I was reminded of this as I reviewed some data and thought about our current reality. Ā There is still a huge bull market in fear. Ā The VIX at 16 (historical lows of 10), low bond yields, consumer confidence, small business sentiment and many other indicators all make this abundantly clear. Ā But the interesting thing is that Americans aren’t alone in this. Ā This is a global bull market in fear.

Let’s take a look at some of the data. Ā  This chart via Bloomberg Briefs shows global consumer confidence versus the equity indices. Ā What was once a tight correlation has almost completely disappeared in the post-crisis era.

The Orcam Wall of Worry Index, which is a summation of many different sentiment readings, remains elevated and nowhere near the lows of 1990′s.

(Source: Orcam Investment Research)

So, the good news is, you’re not alone if you’re fearful. Ā The bad news is, your fear of everything is probably holding you back to some degree. Ā The trip to the top of the investment mountain is strewn with land mines. Ā But you still have to be willing to put one forward in front of the other to get there. Ā Measured optimists will get to the top first.

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