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.
"If you can meet with Triumph and Disaster, and treat those two strangers just the same"
IF ... Rudyard Kipling
We all probably know someone who believes that their successes are entirely down to their own levels of skill and whose failures are someone else’s fault. To some extent most of us will meet them in the mirror each morning. This is self-serving bias in action. As Donelson Forsyth explains it:
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There are a lot variables regarding IBM's debt issuance, maturation, servicing, and rollover that I simply do not have time to fact check. The reason for the IBM case study is not to be wholly accurate, but to place IBM's current stock buyback and debt issuance programs in context with abnormally low Fed fund rates today juxtaposed against a backdrop of higher future interest rates in 2017-2019 and the recent back up in Treasury yields at the short end of the yield curve as the Fed telegraphs a higher Fed funds rate sometime in 2015.
Why do this? Because we want to overlay IBM's stock buyback and Debt Issuance with the NY Fed models assuming "excess high returns" for the US stock market through 2018 and the GMO (G...
The revolution in Ukraine and Russia's illegal annexation of Crimea have generated a serious security crisis in Europe. But, with Western leaders testing a new kind of financial warfare, the situation could become even more dangerous.
A democratic, stable, and prosperous Ukraine would be a constant irritant – and rebuke – to President Vladimir Putin's autocratic and economically sclerotic Russian Federation. In order to prevent such an outcome, Putin is trying to destabili...
Rovi Corporation (NASDAQ: ROVI), a global leader in entertainment discovery, announced it has entered into a definitive agreement to sell its DivX and MainConcept businesses. Rovi had previously announced its intent to sell the DivX and MainConcept businesses by the end of the second qua...
This one matters a lot. Abenomics was predicated on a lunatic notion—namely, that the economic ills from Japan’s massive debt overhang could be cured by a central bank bond buying spree that was designed to be nearly 3X larger relative to its GDP than that of the Fed. Yet anyone with a modicum of common sense and market...
Shares in Chipotle Mexican Grill Inc. (Ticker: CMG) opened higher on Thursday morning, rising more than 6.0% to $589.00, after the restaurant operator reported better than expected first-quarter sales ahead of the opening bell. But, the stock began to falter just before lunchtime on concerns the burrito-maker will increase menu prices for the first time in three years. The price of Chipotle’s shares have since fallen into negative territory and currently trade down 3.5% on the session at $532.89 as of 1:50 p.m. ET.
Last week’s market performance was nasty again, especially for the Small-cap Growth style/cap, down 4%. Large-caps faired the best, losing only 2.7%. That’s ugly and today’s market seemed likely to be uglier today with escalating tensions over the weekend in Ukraine.
But once again, positive economic trumped the beating of the war drums. Retail Sales jumped up 1.1% over a projected 0.8% and last month’s tepid 0.3%, which was revised up to 0.7%. While autos led, sales were up solidly overall. Business inventories were about as expected with a positive tone. Citigroup (C) handily beat estimates to add to the morning’s surprises. As a result, the market was positive through most of the day, led by the DJI, up 0.91%, and the S&P 500, up 0.82%. NASDAQ had a less...
[Facebook] The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others, according to several people involved in the process.
The authorisation from Ireland’s central bank to become an “e-money” institution would allow ...
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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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Ladies and Gentlemen, hobos and tramps,
Cross-eyed mosquitoes, and Bow-legged ants,
I come before you, To stand behind you,
To tell you something, I know nothing about.
And so the circus begins in Union Square, San Francisco for this weeks JP Morgan Healthcare Conference. Will the momentum from 2013, which carried the S&P Spider Biotech ETF to all time highs, carry on in 2014? The Biotech ETF beat the S&P by better than 3 points.
As I noted in my previous post, Biotechs Galore - IPOs and More, biotechs were rushing to IPOs so that venture capitalists could unwind their holdings (funds are usually 5-7 years), as well as take advantage of the opportune moment...
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