I apologize at the start today – this note may be a bit lengthy but it is useful for weekend review when you have a moment to really think some of this through effectively.

The media is pouncing, hearts are racing, the masses are looking to every new headline – as though their computer screen or smartphone is going to deliver them from this confusion.

There is a strong human tendency to feel this is the worst it has ever been.

Our mind plays tricks on us during these periods.

Since we “made it through” all of the other things that also felt worse than we had ever seen, the emotion triggered tells us that this one – this thing – this current menagerie of terrible problems is indeed the worst we have ever seen.

The mountain seems very large as we effort to see beyond the storm.

Rest assured, I have seen many a storm – real storms – life threatening storms out on the ocean in the middle of nowhere during a race. They all ended. The sun rose after each one. The heartbeat went down to regular pace and the tension eased.

Today we are living through yet another bout of Apocalypse Now.

The panic has ensued quickly. Confidence in the heart of the investor audience has been sapped quickly – indeed very quickly.

One can sense the crowd is simply tired of the roller-coaster and choosing again to sell for anything – and ask questions much later.

Sentiment Worst Since 2003?

Wow – as of yesterday morning, the investor sentiment surveys had hit lows not seen for years.

In fact, the survey results show the bullish sentiment today is now lower than seen at both the low of the tech bubble collapse AND the lows of the Great Recession in March of 2009.

In either case, the indices were thousands of points lower than today. It is a fact: FEAR is set in place – deeply seeded and it takes only days to light it up in full force.

How Bad is Sentiment (contrary good for long-term viewpoints)?

First, the latest numbers – 24 hours old – are noted:

  • Bullish: 17.9%
  • Neutral: 36.6%
  • Bearish: 45.5%

Next, be aware of the historical averages:

  • Bullish: 39.0%
  • Neutral: 31.0%
  • Bearish: 30.0%

Now it is important to note these are not one week events. This is simply showing that the fear sentiment is setting in deeper as time goes on. How do we know that?

Bullish sentiment has now been below 30% for seven consecutive weeks and is below its historical average of 39.0% for 43 out of the past 45 weeks.

Bearish sentiment was last higher on April 18, 2013 when it peaked above 48%. Bearish sentiment has been above its historical average of 30.0% during four out of the last five weeks….and 39 of the last 43 weeks.

The Biggest Number of All:

The lowest point the bullish sentiment reached during the tech bubble bursting was in mid-February of 2003 at 21.1% (that is higher than right now)

The lowest point the bullish sentiment reached during the Great Recession collapse was in early March of 2009 at 18.92% (that is also higher than right now)

One needs to really let that sink in. Those historical periods represented collapse unlike anything we are seeing right now.

So What IS The Fear About?

I am going to make an effort to keep this simple – so forgive me ahead of time if it gets a little wordy.

Apparently, it is now readily accepted that the world will collapse because of cheap oil.

Now, forgive me again – but these notes cover ed many days of just the opposite back in the summer of 2008 – I have a copy of them all.

The fears then were entirely opposite of what they are today. Then, crude was cresting $140 and at its peak, reached $148. When it peaked, the airwaves were awash with calls for $200, $250 and even $300 a barrel.

We were told we would be consumed by the powers of the Middle East oil producers.

It was as vivid – as emotional – and as false as the fears of today.

Today we fear a completely different event – and here is where the simplification effort comes in. The story goes something like this:

There are $300 billion in bonds in the energy marketplace. Those funds we re used to drill for and find oil by many, many companies – all at much higher prices.

Clearly, investors who own those bonds were hoping for a better outcome.

But herein lie the keys to why the world will not end:

First, investors own these bonds – not banks (like the mortgage crisis)

Second, far from being afraid of bonds losing value – many who are in the business of buying up bad debt are searching to buy more of the right ones. Why in the world would one search through and look for more bonds to own during such a collapse? Because the bondholders will own the companies if and when they need to restructure.

Third – the over-arching summation of the fears is this: $300 billion dollars of bad energy debt will bring down the house of cards….so one is better off running now.

This is no different than assuming that if Greece disappeared entirely we would all perish. We go from crazy thought to crazier fears.

But here is the thing: Do we really think all $300 Billion in energy debt is going bad? Really? Every single bond from every single energy company is worthless?

Not so – in even the most remote circumstances.

Energy prices will bottom.

But get this in our brains and in our gut: We have already erased $1.5 trillion in stock market values in the US alone – nearly $4 trillion worldwide in just 10 days.

That allows for EVERY single energy bond to be burned in a bonfire – 5 times over in the US and 12 times over worldwide.

That is what you would usually reference as absurd. Is it enough?

Maybe not…a couple thoughts are still in order as we need to brace for the idea that selling insanity can last for a bit longer indeed.

Back in 2008

When the energy world was on the other end of the price gauge, we stated this at $140 a barrel:

“While the world is awash in video and media hype about $300 oil, we suspect we won’t even reach $10 higher. Why? The noise is too loud. Fear is stretched too far. Everyone knows about it already. Anyone with a drill will find oil and just as the world finds a way to u se less of it, the producers will suddenly, miraculously find it everywhere they look. Just as we reach the peak of fears and angst over oil prices that will collapse the world, the seeds of the solution are already being released into the system.”

Today, the world now fears, for even nuttier reasons, $10, $15 and $20 oil – and gas costs at the pump of $1.50 instead of the $5.00 just two summers ago.

My thoughts, if interested, suggest we focus on this instead:

“While the world is awash in video and media hype about $10, $15 and $20 oil, we suspect we won’t even reach much beyond $20 (by the way – we suggested that many months ago). Why? The noise is too loud. Fear is stretched too far. Everyone knows about it already. Anyone with a drill will find ways to cap them – idle them and supply will begin to be better controlled. Suddenly, miraculously – supply and demand will better balance and market pricing will stabilize – albeit at far lower levels than previously expected. Just as we reach the peak of fears and angst over oil prices that will once again collapse the world (for opposite reasons as in 2008), the seeds of the solution are already being released into the system.”

Sound familiar?

Yes, some companies will go bust. Some will not succeed. Some will splatter all over the ground in failure. That happens everyday in every business.

However, not every energy company will go broke. Not every energy bond will be in default. Not every terrible event plastered on our mind by the hype today on the topic will even remotely come into reality.

That all noted, one really important thing needs to be understood – and readers know I have mentioned this often before – most recently in the August mini panic:

We are a mass of humans – the herd instinct is a powerful, subconscious emotion.

We are all wired the same way and most act the same way when under stress. Not all – and not exactly the same – but close when seen as a mass.

Here is the deal – self-fulfilling prophecy is how our economic structure works. It works based on the underlying trust that all will keep going. All will do what they normally do.

It is much like traffic on the interstate – it all moves pretty well before the first guy taps his breaks. Then, 20 minutes later – it takes two hours to get home.

Likewise, if we fear too much, if too many fear too much, if t oo many get caught up in the media hype of fear-mongering from experts – human nature will change.

We can fear events – we can cause a recession.

We can bring about what we were afraid of simply by not doing what we would normally do.

The Bottom Line?

This is flat out ugly – no words change that in the near-term.

But near-term is not what we invest for – we are long-term investors looking to build long-term wealth.

Yes, we have excessive amounts of cash we held all last year – and that is how you gain advantage while others run – and it will unfold.

Yes, the stocks we do own – h ave not been helped by the latest panic. There is an old saying:

“One always has too much of what they don’t want and not enough of what they do want when markets are under stress.”

The point is – there is no perfect.

There is only focus, discipline and patience – if the goal is to meet long-term wealth building goals.


This is where the long-term investor earn their monies. This is where panic pays off if focused on the proper horizon. This is where – just as it feels the worst in your gut – one must step into the battle.

This is where one moves forward into the near-term pain and stress – and not back into running for the hills.

Yes it is tough – but that is how wealth is built. Doing what others cannot. Standing tall when others wilt. Staying focused when others sway. Being patient when others can not be so.

I close with one reminder:

There are now fewer bullish investors than there were at both of the last two bear market lows.

Sound reasonable to you?

The US economy is on the doorstep of something dynamic – just like the stage was set in the late 70’s / early 80’s.

Have a good weekend. The baton is being passed. Seeds are being sowed. This panic is valuable – even while it is painful.