When I worked in Hong Kong from 1990-1995 I witnessed first hand the great emerging market bubble of the early 1990s. At the time, paying any price for anything that had exposure to China, India, Russia or Brazil was OK, because the present value of the money everyone was going to make from four billion new consumers the world over was an almost incalculable figure. Alas, we all found out that it was going to take more than six months to set up shop in China and India to manufacture and sell our widgets to all of these eager new consumers, and the frenzy died down.

We are now about 15 years down the road. The economic progress in China over the past 15 years is something the world has most likely never seen. India, which Jim Rogers always accurately pointed out was a complete mess, has completely overhauled its cities, transportation systems, and infrastructure. Capitalism has taken hold and goods and services are exchanging hands at a ferocious rate.

Despite this being arguably the most robust economic time in the history of our planet, sitting at my desk listening to market pundits and looking at my favorite sentiment indicators, all I seem to find is global equity bearishness. The Commitment of Traders report released yesterday shows a net short position for speculators in the S&P 500 futures for the first time since November 2005. On Bloomberg, look at AAIIBEAR Index AAIIBULL Index HS which shows the spread between bears and bulls to be heavily weighted to the bear side right now, even as market indices approach or break through all time high levels. It is a common for these indicators to be so skewed, but only after market declines, not at new highs.

In asking myself why, I think back to a passage from EdSpec describing the experiences of Victor's relatives after the crash of 1929 when they lost quite a bit of money. It seemed that even more disastrous to them than the money they lost was the opportunity they missed over the next 50 so years because every time the market rallied they wanted to sell so as not to get caught up in the next crash, With the memories of the Internet bubble and subsequent crash still fresh the latest batch of Wall St. participants, its seems likely that this same psychology is what is dominating the scene right now.


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