The Contrarian Indicator of the Decade?

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.

Sir John Templeton

Buy the fear, sell the greed. Since bottoming-out in 2009 markets have seen an uptrend in equity prices:

Now it seems like the euphoria is setting in. And in perfectly, deliciously ironic time, as shares of AIG — the behemoth at the heart of the 2008 crash — are returning to the market. Because reintroducing bailed-out companies to the market worked well last time didn’t it?

Joe Weisenthal:

Markets are down a hair today, but the theme of the morning is clear: Uber-bullishness. Everywhere.

This is the most unanimously bullish moment we can recall since the crisis began.

Note that this comes as US indices are all within a hair of multi-year highs, and the NASDAQ returns to levels not seen since late 2000.

Big macro hedge funds, who have been famously flat-footed this year, are now positioned for a continued rally.

Bank of America’s Mary Ann Bartels:

Macros bought the NASDAQ 100 to a net long for the first time since June, continued to buy the S&P 500 and commodities, increased EM & EAFE exposures, sold USD and 10-year Treasuries. In addition, macros reduced large cap preference.

J.P. Morgan’s Jan Loeys:

We think the positive environment for risk assets can and will last over the next 3-6 months. And this is not because of a strong economy, as we foresee below potential global growth over the next year and are below consensus expectations. Overall, we continue to see data that signal that world growth is in a bottoming process.

SocGen’s Sebastian Galy:

The market decided rose tinted glasses were not enough, put on its dark shades and hit the nightlife.

And the uber-bullishness is based on what? Hopium. Hope that the Fed will unleash QE3, or nominal GDP level targeting and buy, buy, buy — because what the market really needs right now is more bond flippers, right? Hope that Europeans have finally gotten their act together in respect to buying up periphery debt to create a ceiling on borrowing costs. Hope that this time is different in China, and that throwing a huge splash of stimulus cash at infrastructure will soften the landing.

But in the midst of all that hopium, let’s consider at least that quantitative easing hasn’t really reduced unemployment — and that Japan is still mired in a liquidity trap even after twenty years of printing. Let’s not forget that there is still a huge crushing weight of old debt weighing down on the world. Let’s not forget that the prospect of war in the middle east still hangs over the world (and oil). Let’s not forget that the iron ore bubble is bursting. Let’s not forget that a severe drought (as well as stupid ethanol subsidies) have raised food prices, and that food price spikes often produce downturns. Let’s not forget the increasing tension in the pacific between the United States and China (because the last time the world was in a global depression, it ended in a global conflict).

It would be unwise for me to predict an imminent severe downturn — after all markets are irrational and can stay irrational far longer than people can often stay solvent. But this could very well be the final blow-out top before the hopium wears off, and reality kicks in. Buying the fear and selling the greed usually works.

15 thoughts on “The Contrarian Indicator of the Decade?

  1. I agree with your post. However, quoting a meaningless so-called journalist such as BI’s Joe Weisenthal somewhat diluted the value of your post, in my opinion. That guy merely quotes everyone and seldom, if ever, includes well backed up arguments for his own so-called thoughts. But again, thanks for this post with which I certainly agree.

      • Bear Stearns stock sold to JP Morgan for $2.00.

        Upwardly revised to $10.00 (Because Bear was worth at least that, it was a liquidity issue, they say!) 4 1/2 years later, its still a liquidity issue (they tell us.)

        Of course we won’t point out Maiden Lanes 1 & 2 were all the toxic assets. By my count, it was around $29 Billion, but thats only what was reported to the public.

  2. Pingback: The Contrarian Indicator of the Decade? « Hawks5999

  3. Pingback: The Contrarian Indicator of the Decade? « Silver For The People – The Blog

  4. This is just part of the “something for nothing” scam that permeates our society.

    Even when it is SOOOOO obvious that these markets are simply another way to steal from people, most refuse see theTyrannosaurus Rex and concentrate on the ant instead.

    If it is your desire to live in more sane world, then you must begin to eliminate the insanity. Until institutions, which spend almost of their time devising newer and better shell games, are seen for what they truly are, nothing will change.

    We will have the ultra-haves and the rest, with their continuous wars to secure that which they have taken – with the blessing of nearly all.

  5. Pingback: The Contrarian Indicator of the Decade? [Azizonomics] « Mktgeist blog

  6. Pingback: Guest Post: The Contrarian Indicator Of The Decade? | Silver Prices & Silver News

  7. Pingback: Guest Post: The Contrarian Indicator Of The Decade? |

  8. There are some that believe in long-term wave cycles. That, over the long run, history repeats itself in not so sublet waves.

    One “famous” cycle is called the Kondratieff wave, named after the Soviet economist that first wrote about the observation that societies all seem to follow a similar long-term pattern over a 60 year period. (Russians seemed to have lived short lives back in the 1920’s, which makes sense,)

    This “K-wave” has been updated and applied to the U.S.A in by 2 historians. Struass & Howe in their book, “The Fourth Turning.”

    The common link between the 2 works is that societies seem to follow both a generational patterns (20 years) and a life patterns (approx. 60-80 years.)

    Both schools of thought go on to point out that humans are conditioned by their upbringing (generational) and distended to never learn the generational lessons of their great-grandparents whom they never meet.

    Applied to today, it seems obvious, that we today are and will be living in age that few living humans have ever experienced. Most of us in the developed world have truly never known the pangs of hunger. Here in the U.S.A., we have a rather large poor population that is obese. Thats is, they are poor, but are able to find and consume more calories then is needed to sustain life.

    These calories of course are currently provided by our government. But, there is a wrinkle, our government is running out of the ability to provide for these individuals.

    A thinking person would then ask, “What happens when we can’t support these people?”

    And that my friends, is what our great-grandparents would tell us if they still alive.

    “Don’t spend more then you make!”

    “Don’t borrow more then you can pay back!”

    “Don’t gamble away your days wages!”

    But, it goes further then the common man.

    “Printing money does not replace capital.”

    “Bailing out failed institutions can’t recreate prosperity.”

    “Wealth redistribution will turn into theft.”

    I write the above for a reason. I believe what Aziz writes. That lunacy has become the norm. What we are living through today is normal. It is only that the people that are able to confirm our suspicions today have passed way. They are no longer able to teach and guide us in the right direction. We have come to the inflection point were trillion dollar deficits are the norm. Were printing money is accepted to just keep our collective heads above water.

    That we, collectively, know these current structures can’t last doesn’t seem to phase us. As long as there is a steak on the plate, wine in the glass and a warm bed to lay in at the end of the night, we will not waver from our current path.

    Well, if our great-grandparents could speak from the grave they would say this:

    “Steak is expensive.”

    “Wine is for rich folk.”

    And, “Roofs don’t fix themselves! Get your ass up there and fix the fuckin’ leak now, or you ain’t gonna see this pussy for a long time.”

    PS I fix roofs and a won’t ask for your wife as payment (Though, she does seem to be giving me the eye.”

    • This is human nature. Who speaks to their Great Grandmother? Not many. Not many are alive that are wise enough to change society anyway.

      So a few will have the wisdom but the majority will have failure. This is a given.

      My Grandmother was a young girl in the depression. She just remembers rationing for the war effort. What does she know about finance?

      My best advice is to go to the Library and read the papers of the 1928-39 period. This is what would have moulded society. What we don’t have is the Radio announcements. This was powerul propaganda back then. Remember the Radio was today’s iPad. People got finance or rented them. This caused the boom like the internet tech bubble.

      Agricultural land and a cabin id fool proof. If all fails you still have a roof over your head and no utility bills. Plenty of food to eat (Sheep, Rabbits, Kangaroos, fruit, vegies) When you limit your material wants life is very simple indeed.

      You can buy land in Australia for 300-500 acre. You can build a cabin with recycled materials for less than $5000.

      The stockmarket is a shell game.

  9. FO-SHO,
    I agree with your assessment. We can’t be aware of the lessons that could and would help if they were available. The way primitive tribes develop skills and share wisdom.
    By the way, it seems wisdom itself is no longer admired or even sought after. Wisdom isn’t about lookin’ for fast bucks!
    Although, at this point it is un-wise to ignore potential profits. In my view, it’s wise to understand as much as possible about the happenings and the trends that develop. So what if its a full-time job and doesn’t pay until you’re right.
    Who else you gonna trust?
    One last thing, and I see this ’cause Mom was a teacher…and shared her knowledge even when I didn’t want to hear it…
    so here goes..
    ‘then’ is time-based; ‘than’ is comparative. Hope you’re taking it in the best way possible. 🙂

  10. I remember the March 2008 low. I was surfing the comments of I noted the unusual surge in the market. Most people said the sky was still falling, fundamentals have not changed. One guy stuck it to the other posters by saying, “I am taking this wave for a ride. You doomers will never jump on board”.

    He was right, because whilst I don’t see the fundamentals changing, the market is rising. The same thing happened last year when the market tanked then reversed sharply on co-ordinated Central Bank easing ( I was about to go very short with MF GLOBAL!!! and I argued about disclosing my full financial position to them, so did not do the trade to short the market. This was very fortunate for me!).

    Hopium is a way to make money. This is what Central Planners do best.

Leave a Reply to Aziz Cancel reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s