George Costanza: "My life is the opposite of everything I want it to be. Every instinct I have, in every part of life, be it something to wear, something to eat … It’s all been wrong."
In a classic episode of Seinfeld called The Opposite, perma-loser George Costanza comes to the realization that if he would just act completely contrarily to his own instincts, things would begin to go his way.
Jerry Seinfeld: "If every instinct you have is wrong, then the opposite would have to be right."
One cannot help but see the parallels between George’s epiphany and the paradox of the high beta market rally that has left even the most experienced players in utter disbelief.
Think about how rewarding it’s been for traders who have completely violated any sense of prudence or market savvy:
*AIG ($AIG) barely avoids liquidation – buy it and enjoy percentage gains in the thousands!
*Unemployment remains at around 10%, inital jobless claims are still climbing – so buy some specialty or even luxury retailers!
*Mortgage rates are inching higher and housing has not truly bottomed – so snag some Hovnanian ($HOV), some lumber names and why not a little Home Depot ($HD).
*Oil breaks out above $85 – and the airlines go wild!
*Congress passes a de facto takeover of Healthcare – OMG! Healthcare stocks are rallying on the news of their newly subjugated status!
*Commercial RE is a time bomb – REITs! I gotta have more REITs!
We can document dozens of these types of paradoxical setups. Investors are taking almost any opportunity to do the opposite of what they’d normally be expected to do. If everyone in the market is a contrarian, is the true contrarian the non-contrarian? Heh – "Whaaaaat is the deeeeaal with contrarians?" Thanks, Jerry.
If Georgie was running a hedge fund right now and abiding by his counterintuitive life strategy, he’d be absolutely killing it.
George Costanza: "I tell you this, something is happening in my life. it’s all happening because I’m completely ignoring every urge towards common sense and good judgment I’ve ever had. This is no longer just some crazy notion. Jerry, this is my religion!"
The January Merrill Lynch Fund Managers Survey showed very optimistic expectations from the majority of money managers. This is a sharp change from last months survey when fund managers were entering 2009 with cautious optimism. The latest survey showed the highest surge in Merrill’s Risk & Liquidity (46%) indicator since May of 2006. In the past, this indicator has served as a fairly good contrarian indicator.
In terms of asset allocation, fund managers have turned substantially more aggressive. Cash levels are now at their lowest levels since 2007. Fund managers have aggressively deployed cash into the equity markets:
“Average cash balances have fallen to 3.4 percent, the lowest reading since mid 2007 and down significantly from 4.0 percent in December. Appetite for equities is strong. A net 52 percent of asset allocators are overweight equities, up sharply from a net 37 percent in December.”
Much of this cash has poured into commodities:
In terms of regions, the U.S. remains an underweight as investors continue to favor emerging markets:
This survey is showing some contrarian sell signals. Just 45% of fund managers are protecting themselves against a downturn versus 52% in December. The survey also shows a strong appetite for risk and high beta names. According to Merrill’s analysts the survey could be cause for alarm:
“This survey is one of the more bullish we have seen and suggests that investors buy into the idea that this recovery has legs,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research. “We are, however, seeing early signs that might alert contrarians looking for a selling opportunity – namely low cash allocations and possible complacency against a sell off in stocks,” said Michael Hartnett, chief Global Equities strategist at BofA Merrill Lynch Global Research.
The Bears, who are dead right about how bad the economy is or the Bulls who are dead right for being long virtually every asset class, the riskier the better? Perhaps the true contrarian is neutral right now, refusing to play either the economic weakness or the markets’ strength. My head hurts.
Anyway, I put together a few notable quotations on contrarianism itself while you ponder the above conundrum. Bon appetite…
The first gets to the very essence of contrarianism, from one of the most famous practitioners of this art, David Dreman:
“I paraphrase Lord Rothschild: ‘The time to buy is when there’s blood on the streets.’”
And the classic take from Warren Buffett:
“We simply attempt to be fearful when others are greedy, and to be greedy only when others are fearful.”
One from Bernie Schaeffer:
“As contrarians, the only thing to fear is the lack of fear itself”
Perhaps the greatest contrarian investor of all time, Sir John Templeton, weighs in:
“Bull markets are born on pessimism, grown on scepticism, 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.”
Here’s a little-known contrarian gem from fund manager and legalized-heroin advocate George Soros:
“The worse a situation becomes the less it takes to turn it around, the bigger the upside.”
This one’s recent, but an instant classic nonetheless. Arthur Cuttensaid it yesterday on Jesse’s Cafe Americain:
“But being a contrarian requires a superior sense of what is real, and what is out of synch with reality. In general few amateurs possess this level of judgement and perspective, and end up just looking silly and eccentric after a few correct calls, taking the opposite position because it is the opposite, proclaiming night to be day, and the moon to be cheese.”
These are my favorite contrarian investing quotes, let me know if I missed any good ones.
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
Here is a update in response to a standing request from a couple of sources that I also share with regular visitors to my Advisor Perspectives pages.
The request is for real (inflation-adjusted) charts of the S&P 500, Dow 30, and Nasdaq Composite. In response, I maintain two overlays — one with the nominal price, excluding dividends, and the other with the price adjusted for inflation based on the Consumer Price Index for Urban Consumers (which is usually just refer to as the CPI). The charts below have been updated through the August 29th close.
Buffalo Wild Wings Inc. (Ticker: BWLD) shares are in positive territory in early-afternoon trading on Thursday, reversing earlier losses to stand up 0.50% on the session at $148.50 as of 12:15 pm ET. Options volume on the restaurant chain is running approximately three times the daily average level due to heavy put activity in the October expiry contracts. It looks like one or more traders are buying the Oct 140/145 put spread at a net premium of roughly $1.45 per contract. As of the time of this writing, the spread has traded approximately 3,000 times against very little open interest at either striking price. The put spread may be a hedge to protect a long stock position against a roughly 6% pullback in the price of the underlying through October expiration, or an outright bearish play anticipating a dip in BWLD shares in the next couple of months. The spread makes money at expiration if shares in BWLD decline 3.3% from the current price of $148.50 to breach the breakeven point...
Gradient Senior Analyst Nicholas Yee reports on six companies that are using a variety of techniques to shift pretax profits to lower-tax areas. Featured in this USA Today, article, the companies include CELG, ALTR, VMW, NVDA, LRCX, and SNPS.
Mt Gox may be long gone in the annals of bankruptcy, but its founder refuses to go gentle into that insolvent night. And, as CoinDesk reports, the disgraced former CEO of the one-time premier bitcoin trading platform has decided to give it a second try by launching new web hosting service called Forever.net and is registered under both Karpeles’ name and that of Tibanne, the parent company of Mt Gox.
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Author Helen Davis Chaitman is a nationally recognized litigator with a diverse trial practice in the areas of lender liability, bankruptcy, bank fraud, RICO, professional malpractice, trusts and estates, and white collar defense. In 1995, Ms. Chaitman was named one of the nation's top ten litigators by the National Law Journal for a jury verdict she obtained in an accountants' malpractice case. Ms. Chaitman is the author of The Law of Lender Liability (Warren, Gorham & Lamont 1990)... Since early 2009, Ms. Chaitman has been an outspoken advocate for investors in Bernard L. Madoff Investment Securities LLC (more here).
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
I just wanted to be sure you saw this. There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.
If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.
Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.
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