Up, up, up: Beware, because no one sees a bear in 2007

An article in USAtoday...

NEW YORK — Contrarians rejoice. Groupthink is back on Wall Street. Ten out of 10 stock market gurus interviewed by USA TODAY say stocks will post gains for a fifth-consecutive year in 2007. The expected gains range from 15% to 1%, and average out to 8.1%.

There wasn't a single bear. No real pessimists. No one calling for a loss. Not a single prognosticator warning of an impending slump. If bulls are right, investors who follow the herd will be rewarded. But from a contrarian standpoint, that glass-is-half-full optimism could spell trouble. As the Grateful Dead pointed out in its popular song, Uncle John's Band, "When life looks like Easy Street, there is danger at your door."

One person who sees potential danger due to the dearth of bearishness is the stock strategist with the least optimistic '07 forecast: JPMorgan Chase's Abhijit Chakrabortti.
"It does worry us," Chakrabortti says. "Everyone thinks the economy will be fine. Everyone thinks earnings will slow but still grow at a decent clip. Everyone thinks the Federal Reserve will either cut interest rates or hold rates steady. Nobody thinks the dollar will collapse or oil will spike again. That, to me, sounds dangerous."

It's not just Wall Street that's feeling confident after a surprisingly good year in which the Dow Jones industrial average blasted to 22 all-time highs since early October. Individual investors are also feeling optimistic."Investor optimism remains buoyant as 2006 comes to a close," reads the press release touting the December UBS/Gallup Index of Investor Optimism.

Nearly two of three investors say, "Now is a good time to invest," up from 57% in November, the poll found. And the CBOE volatility index, or VIX, a "fear index," is sitting near historic lows, a "sign of complacency," Ned Davis Research says.

But given that seven of the 10 forecasts call for ho-hum single-digit gains, Bernie Schaeffer, an expert on market sentiment and president of Schaeffer's Investment Research, has a different contrarian take: "This cautiousness is of even greater importance, given the flat-out bull market we've experienced in the second half of 2006. So a runaway bull market would be a major contrarian surprise."