Monday, December 19, 2011

Sentiment During Market Cycles

The following flow chart provides a great visual on investor sentiment during the different stages of a market cycle.  From my perspective on where different investment class are today I would say that:

- Gold is in the optimism phase

- Housing is in the desperation phase

- US treasury bonds are in the euphoria stage (maximum danger - peak of bubble)

There is not a market today I feel is at the maximum level of pessimism (point of maximum financial opportunity), such as stocks were in 1981, real estate in 1991, or gold in 2001.  While we still have the final few innings of the gold bull market, including the final euphoria parabolic move higher (point of maximum financial risk), I think real estate is the closest market to being the next great undervalued buying opportunity after we experience the final leg of price declines.

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