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« Market Valuation: An Indicator of Long-term Sentiment | Main | Investing for 2007: Using Long-term Sentiment to Gain Perspective »

January 16, 2007



Hi Mike,

Thanks for your helpful comments. As my readers know, I am working on a book on these topics. Any comments and criticisms help me to sharpen the analysis and also spot errors. I know that many are reading without commenting, and I really do wish that more would offer their viewpoints.

To your points --

On the M3 issue, my current impression (pending some more work) is that this is a tempest in a teapot. The Federal government cannot effectively conduct conspiracies, so I tend to take the Fed's explanation for dropping the series at face value. They provided a technical explanation for why M3 was no longer helpful, and I'll try to do more research on this for a future topic. At the moment, I do not think it is relevant to overall market valuation.

As to traditional sentiment indicators, we also trade very short-term models and track these for that purpose. My point here is that people have different time frames. Those with a longer horizon can usefully view the valuation gap as reflective of sentiment. Short-term sentiment can still help in the timing of entry points.

On mutual funds, we have a lot of data covering the entire time period. This was not suitable for this overview post, but will be the subject for more detailed analysis and the book. For much of the time period, mutual fund managers have been dealing with outflows and have needed cash for redemptions. I hope that you will keep reading and let us cover this in more detail in the future.

Thanks again for your helpful comment!

mike turner

Dr. Miller,

I take issue with some of your statements.

1. 'Briefly put, the Fed has been withdrawing stimulus throughout this time'

How do you know? since M3 reporting has vanished. Up until it disappeared, money was being printed at double digit increases.

2. "While the short-term sentiment measures reflect the attitudes of those trading every day -- AAII, put/call ratios, newsletter writers, blogger polls, and the like -- the facts show that overall sentiment remains quite negative.

Are you sure? My research shows that most short term traders don't have a trading opinion. They trade and trail a stop either direction depending upon their strategy and indicators. My research also shows COT reports covering the major indicies as short or neutral at best.

3. Even domestic managers held higher than normal cash levels.

My research finds that most mutual funds are fully invested with less than 5% cash reserves.


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