This is what tops look like
Like Apple stock a year ago, the market’s sunny optimism sits in sharp contrast to the situation on the ground. Going against the mainstream at times like these is the best way to put the odds of success in your favor.
Being a contrarian is not easy. If you are right about a new idea, it always takes time to prove out. In the short run, you usually appear to be wrong, and you look -- and often feel -- silly.
While I don't consider myself contrarian for its own sake (I am a contrarian because it is the best way to improve your risk/reward odds), longtime readers know that I have no problem voicing unpopular opinions. I try to be disciplined about coming to my own conclusions, regardless of what anyone else might think.
About a year ago, I had a great opportunity to illustrate this point. On MSN Money on April 5, 2012, I published a controversial column titled, "Is it time to bet against Apple?" It certainly generated a lot of negative replies.
It's no longer Apple season
Those who are interested can re-read it if they are so inclined, but to summarize, I made the point that "as successful as Apple has been, probably some time in the next couple of quarters, if not sooner, I think it is much more likely to make a great short sell (for those who feel lucky, brave or both) than a great investment from the long side. Given the money-printing environment we have been in, I may or may not try that tactic (it all depends on the setup)."
For the record, I did not try shorting it, but I did trade it briefly in late 2012 for a decent bounce of 1%.
At this time a year ago, this view was unpopular, to say the least. Apple (AAPL) had experienced enormous recent growth and seemingly could do no wrong. To express an opinion that its success might not continue was typically dismissed as sour grapes by someone who had not owned it on the way up. I would have been subject to much less grief if I had talked about why I thought Apple stock would go to $1,650. (If you look at my original column, you will find a link to just such an opinion from a writer at Forbes).
I have been wrong too many times to take any particular pleasure in being right about Apple, which has lost more than 30% in the past year. My point in bringing it up is to learn from this outcome.
What happened with Apple is not unique, which is partly why I was able to come to the conclusion that I did. It is what a top in a stock looks like. This is important because, as I have said repeatedly, you can't know in advance when a stock will experience a top. You have to be alert to the signs. If you know what a top looks like, you will have a better chance of recognizing one as it starts to develop.
The current environment is another example. As stock markets around the world have risen this year, so has confidence that the "worst" -- whatever that is -- might be behind us. Despite the huge misallocations of capital we saw during the stock and housing bubbles, people still believe that Wall Street prices are generally "right" and that, therefore, rising stock prices indicate a rosy future.
94% pure bull?
To give an indication how far this mindset has spread, last weekend Barron's again featured a picture of a bull on the cover, this time with a "Dow 16,000" headline. What readers may not remember is that near the market peak in 2007, a Barron's cover called out "Dow 14,000." (Historically, Barron's covers have been a somewhat contrarian indicator.)
What was truly remarkable, however, were the results of the magazine's Big Money poll, which showed that 74% of institutional money managers were either bullish or very bullish -- an all-time high going back 20 years. Furthermore, looking out five years, 94% of these folks are bullish.
I really don't know what to say about that, it is so astounding. When you think about the large institutional crowd that has convinced itself that basically the future has never been brighter, and combine that with money printing by central banks, it does explain why the stock market is where it is.
What it does not explain is how anyone who lived through the past 10 to 15 years could have come to the conclusions they have come to, but that is a different question entirely. (How so many so-called professionals could miss both bubbles and still have their jobs is an even more perplexing question.)
The optimist sees the year as only half-begun
In any case, we can't answer the unknowable. Obviously, sentiment is not likely to get much more lopsided. Though the one-sidedness of people's opinions does not mean that the market has to decline tomorrow, it does suggest that a great number of people have acted on this viewpoint and probably explains what has hampered gold.
The emotional dynamic in that market, especially regarding the miners, is the exact opposite of what we saw with Apple a year ago, or with the stock market generically now. Except instead of being able to do no wrong, the metals complex seems unable to do anything right. Sentiment is lopsidedly negative, and prices are depressed. That in and of itself doesn't mean the market will turn tomorrow, but just as experience tells one how to recognize a top, it can do the same for spotting when a market may have hit bottom.
When psychology starts to shift back toward the problems that we face, as it did in the second half of 2011 and 2012 (this year's underlying fundamentals are worse), while stocks will likely sink, gold may find a few more buyers.
At the time of publication, Bill Fleckenstein owned gold.
The recent surge is not at all puzzling. Central banks are printing money like crazy. That money has to go somewhere.
While it is indeed a scary contrary indicator when money managers all agree the market is going up up up, at the same time it can't easily go down while central banks are flooding the world with money.
When the stimulus ends, which eventually it must, look out below.
The demise of the middle class is way overstated. The screaming and wailing about this is a Progressive drum beat designed to foment their Marxist drive. You must first vilify that which you desire to destroy and get the masses to chant the same. This is how 6 million Jews were murdered. This Progressive call and chant is the easiest thing in the world to sell. Tell people they are poor, tell them they are being stolen from, feed their covetousness, and then stealing from the successful is a sure bet.
I grow-up in the middle class with a professional working father. I lived in a 990 sq ft house with five people and for most of that time we had one car. No boats, no cabins, no jet skis. Does that sound like the middle class of today? No it does not. By today's standards of middle class I was poor. But people would rather be encouraged by the Progressives who tell them they are the ones being stolen from and that if we only steal from people with more we will be rich.
Who is John Galt?
What matters is a Home, a reliable CAR, and good health-care. The cost of those things have SOARED. Ever have repairs done to your car or home. If you have, you might have been able to buy a New Car back then with current repair costs. Ever go to the hospital recently, it could bankrupt you for life. Recall what a $100 dollars bought at the grocery store back then and the quality of the products. See what a $100 buys at the grocery store today and the quality. Recall how much it use to cost in renting? How about today?
Be careful comparing today's middle-class to those of the past.
The days of vertigo inducing stock market highs are coming to an end, and stocks levitated on money created ex nihilo by the Federal Reserve will come crashing down due to poor sales and earnings.
And just when all hope is lost for gold, silver and mining stocks, a new day will arise. That day is coming soon.
History has shown time and time again how workers rise and fall based on just how much crap they are willing to take from the elite. We are again reaching a tipping point. That's not good for the elite so that's why they have paid drones to misdirect and misinform.
"Everyone is waiting for this recent market surge to end, each day the opposite happens."
However, this current Credit Boom via the Global Feds is worse than the Dot Com Boom and the Housing Boom. Far Worse. We all know how the first two turned out. We also know it didn't rise overnight but sure seem like it failed overnight. The next collapse will likely feel the same. It will just last a lot longer and far bigger Global impacts.
"For the record, I did not try shorting it, but I did trade it briefly in late 2012 for a decent bounce of 1%"
LOL. I'd like to think us loyal readers are gaining something more than a whopping 1% gain!!!
You summed up my thoughts nicely. You and Anthony seem to be infected with the truth. It seems the rest of the Media have their noses too far up Obozo's butt to see the truth.
Oh look, another Fleckenstein article filled with emotional drivel. Every argument he makes is based on either anecdotal evidence or speculative heresay. Anyone who makes investment decisions based on this guy's column is almost certainly going to lose thier money.
Actually, a certain investment group (CXO Advisory Group) did a scientific study on gurus like Bill. They looked at how many times they were able to accurately predict the markets. The average score was 47%.
Bill scored a 37%
Sorry, this guru reminds me of Jim Cramer (before his Bear Sterns crash & burn) and the other promoted Bear on MSN Money, Anthony Mirayrhandi. Not sure his results are equal to or better than his pessimism.
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ABOUT BILL FLECKENSTEIN
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
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As the devil-may-care bravado of Wall Street marches on, history warns that -- in the end -- there will be the devil to pay.
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