I’ve often written about the psychology of the market in the sense that bull markets (even cyclical ones, as opposed to the secular 1982-2000 boom) end on euphoria and greed, rather than on cautious optimism or apathy. To my eye, the current March 2009-present cyclical bull has not yet reached its euphoric phase. You might argue we have not even reached a phase where the majority of participants are full-blown optimists.
While this time could always be different, it looks like we getting to that optimistic phase. It could take several months or even quarters to reach the traditional greed/euphoria frenzy we saw in late-2007, though I do not expect anything as flagrant as March 2000.
As evidence, note this article in Reuters last Friday. (Click for full story).
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Economic optimism now official
Economic optimism is now official. The year ahead could be “a very good one for the American economy,” Ben Bernanke, the chairman of the Federal Reserve, declared on Tuesday. If he turns out to be right, these words could probably be applied to the world economy as a whole.
Since Bernanke, even more than other central bankers, has spent the past four years warning of perils such as the “fiscal cliff” and the dismal condition of the U.S. labor market, this statement, delivered in the carefully worded peroration of a speech to the prestigious Economic Club of New York, marks an important turning point.
Not because Bernanke has a crystal ball that offers him economic clairvoyance. But because his views have an enormous impact on business and financial sentiment around the world. And sentiment — especially about government policies — is the biggest problem for the world economy today.
