Tearing Down the Wall of Worry

“Mr. Market, if you seek tranquility, if you seek prosperity for the S&P 500 and the housing market, if you seek the possibility of another bubble, come here to this gate. Mr. Market, open this gate. Mr. Market, tear down this wall…of worry!” – Ben Bernanke, circa 2009

The proverbial wall of worry that persisted throughout the last five years has not only been torn down, it has been crushed into a million little pieces. There has been no shortage of fear and doubt since the Bull Market began in March 2009. But day by day, week by week, this wall of worry was slowly eroding. Today, as the market has moved to unforeseen heights, the last remnants of doubt have finally been removed.

There have been many factors contributing to the removal of fear, but none have been more important than the unrelenting move higher (record-breaking streak above the 200-day moving average) and the now ingrained belief that the Federal Reserve has the ability to prevent corrections from occurring.


In no uncertain terms, Mr. Bernanke and Ms. Yellen have been forcing investors to take more risk, to tear down that wall of worry that was built up during the Great Recession. And as it turns out, 0% interest rates for over five years can have a powerful effect on investor incentives.

Indeed, the return of the Total US Stock Market (VTI) since March 2009 speaks for itself. The equity market is now up +229%, having more than tripled its value from the low. It is nearly impossible to be worried about stocks or the economy after looking at this chart.


A few weeks ago, David Tepper made headlines at the SALT conference saying the following:

“There are times to make money. This is a time to not lose money. This is when you’re supposed to think about preserving some of your money. I am nervous. I think it’s nervous time.” – David Tepper, May 15, 2014

Only three weeks later as stocks hit new all-time highs, his newfound fears were gone and he was bullish once again:

“Bottom line is, all of those things [that made me nervous] alleviated, one by one.” – David Tepper, June 5, 2014

The Tepper sentiment reversal is certainly a subjective observation, but I think it adds credence to the theory that the “Wall of Worry” is no more. Let’s review some more objective evidence on sentiment today.

1)      Investors Intelligence: The percentage of Bulls in the most recent survey came in at 62.2%, a 9-year high and above 96% of historical readings. There are more Bulls today than at the October 2007 peak.


2)      CBOE Equity Put/Call Ratio: The 10-day moving average of the ratio of puts to calls is below 97% of historical readings.


3)      NAAIM Exposure Index: Active Managers polled by NAAIM are reporting 91% exposure to equities, a reading higher than 95% of historical values.


4)      CNN/Money’s Fear & Greed Index: At a level of 92, the index is currently showing Extreme Greed.


5)      VIX Index: The “fear index” hit a new bull market low of 10.73 last week. If it closes the month at this level, it would be the 3rd lowest monthly close in VIX history.


Collectively, these indicators suggest that the Wall of Worry has been torn down and investors have finally (after a 229% increase in just over five years) become extremely optimistic about the future prospects for equities. From a contrarian standpoint, does this mean that the Bull Market has to end right here, right now? Certainly not; it may very well continue for longer than any of us expect. Even if it is leading to a top, tops tend to be process and generally take time to build as we saw back in 2000 and 2007.

That said, whether investors know it or not, risk is rising. What tends to follow such extreme bullish sentiment readings is a more challenging market environment. Investors should not be surprised to see below average returns going forward as this is what you tend to see (on average) when everyone is already “all-in.”



So while the market could certainly continue to move higher in the coming weeks/months as momentum remains strong, it will no longer be aided by the powerful tailwind of fear and doubt that has persisted for much of the last five years. Instead, it will now have to be driven by greed and the greater fool theory. The question investors should be asking is how many “greater fools” are still out there? We’ll soon find out.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.


Edward M. Dempsey Pension Partners New York







Charlie Bilello is the Director of Research at Pension Partners, LLC, an investment advisor that manages mutual funds and separate accounts.  He is the co-author of two award-winning research papers on Intermarket Analysis. Mr. Bilello is responsible for strategy development, investment research and communicating the firm’s investment themes and portfolio positioning to clients. Prior to joining Pension Partners, he was the Managing Member of Momentum Global Advisors, an institutional investment research firm. Previously, Mr. Bilello held positions as an Equity and Hedge Fund Analyst at billion dollar alternative investment firms, giving him unique insights into portfolio construction and asset allocation.

Mr. Bilello holds a J.D. and M.B.A. in Finance and Accounting from Fordham University and a B.A. in Economics from Binghamton University. He is a Chartered Market Technician (CMT) and a Member of the Market Technicians Association. Mr. Bilello also holds the Certified Public Accountant (CPA) certificate.



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