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.

By Bill_Fleckenstein Apr 26, 2013 10:43AM

Image: Stock market traders © Photodisc/SuperStockBeing 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.

Apr 26, 2013 9:52PM
Everyone is waiting for this recent market surge to end, each day the opposite happens.
I'm as puzzled as you are Bill.
Apr 27, 2013 2:12AM
No one knows when the top is, but regardless I have never found markets where new tops are recorded almost weekly or more frequently to be a buying opportunity.  The cyclical nature of the markets will eventually provide those of us who are moving toward a more defensive posture a true equity buying opportunity, with major, not incremental gains to be had.  Will this opportunity occur in 2013?  Perhaps....or perhaps in 2014, but eventually 'regression to the mean' with respect to equity returns will occur and when it does I'll be ready to jump back into long equity positions with gusto.  Not ready to go short just yet, but intermediate term diversified bond portfolios are still outpacing cash and for those who can come within a few weeks of avoiding a potential bond bubble fueled by cheap money and inflation, moving back into long equity positions will have its time. The harbingers of inflation are already surfacing daily and although timing the market with precision may be a pipe dream, intelligent strategic re-allocations and can help lock the gains for the past several years and position portfolios a meaningful move back into long positions within the next 6-18-24 months in my humble opinion.
Apr 29, 2013 5:05AM

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.

Apr 27, 2013 2:10PM

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?

Apr 27, 2013 1:55PM
Don't fight the tape.  Use trailing stops and enjoy the ride.
Apr 28, 2013 10:42PM
this goose is cooked but will it get burned before the oven is opened??? nobody wants burnt goose.!!! 
Apr 29, 2013 4:35AM
You have to very careful when making comparison to history. First of all, American history is very brief compared to World History. It might not seem that way but it's true. Even just sticking to American history, it's weird when folks want to compare now and maybe 20-40 years ago. Back then, home mortgage were what compared to now. The price of a gallon of milk, loaf of bread, and monthly car notes were what? Sure, we can buy a ton of time wasting devices that make it seem like we have more but in the end, what matters?

 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.

Apr 27, 2013 7:38AM
Not just great contrarian advice. Great advice, period.

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.

Apr 29, 2013 4:22AM
The demise of the middle-class is Way Understated. We have a lot of screaming an wailing from the elite about lack of job creation and or jobs created under Obama that pay well. We hear Zero screaming from those same elite about their soaring pay while sending Jobs overseas to slave labor. Fact is, all DATA points clearly indicate that the middle-class has seen a severe reduction in wages and benefits. Meanwhile the elite 1 percent are seeing just the opposite. More productivity from workers but less pay. Yet the elite are seeing the wage gap move from 40-1 to 400-1. Then we have posters tell you the Middle-Class is the one stealing from the rich. That's Insane. Yet some people are buying into that insanity. Meanwhile the economy collapses because of it.

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.

Apr 27, 2013 6:59AM
There once was a balance point between currencies and assets around the world. Say... $50-60 Trillion, all told. Today, it is over $1 Quadrillion and in three components... actual cash, debt cash and derivatives cash. The latter two prioritize over actual cash. When you see the Dow climb and scratch your head as to how... it's electronic monies infused directly into banks as debt cash and invested to cover derivative obligations. So, when we see the Dow go up but there is no genuine correlating prosperity, know that it isn't recovery, its another shovel full of do-do on our casket in the hole. For the Dow to have risen from say 7,000 to 14,000, every single person in America would have 200% of buying power. Do you have that? Does anyone you know? I doubt it. In fact, an overwhelming majority have less buying power or-- obvious dilution of currency. We cannot survive by turning currency into worthlessness while amassing so much indebtness. You hear the GOP whine about spending? We aren't buying anything we need, we are covering debt costs. You have to assume that the exponential cost on all that fake and false debt is trillions daily or more. You hear the word- bubble used. It is one, but not an inflationary bubble, a fraudulent calculation bubble wiping out the whole world by mathematics! Unrest is growing. Politics are stagnant. There is NO economy. All resolved by a three-act play... Close the banks- they need reconciliation regulation and restricted activities hereon, end the Fed- Central banks are cancers so tie a new currency to Work Units and be done with Bird-Brain Bernankes, get RID of Wall Street and every other Exchange. The premise for them is long gone. Working people earn... that's what grows economies, gamblers ruin. Time to crush them into fertilizer and warn the future to do the same whenever they appear again.
Apr 27, 2013 6:41AM

"Everyone is waiting for this recent market surge to end, each day the opposite happens."


I used to be puzzled, but I understand better each time I read the headlines. Sensible people know that we surpassed the Mature arc in this cycle and we entered Decline or the crossroad between Re-invention or Death. Billionaires and Nothingaires are getting more common, there is no middle and both non-producers and celebrities all make too much, while craft, cultivator, facilitator and experience-bred manager all make the least or worse... are un, under or not employed. We are-- shifting. There is a loud group that insists they can have all the cream delight and the majority who are grounded, trying to establish viable ground. Unfortunately, as frustration, hopelessness and intolerance is gaining, the likelihood of igniting all this friction grows. A new "Boston Strong" beer. The Marathon Massacre was grossly tradgic but the Marathon itself is a mecca for over the top psychopaths. It's a competion for recognition. Runners... run away from... it's like these two young men saw how these folks were so incredibly self-absorbed and self-occupied and did this. It was a blow to America or an act of behalf of a nation, religion or cult... it was an experiment in messing with the Kool Aid Crowd. It worked. I'm not trying to be insensitive, I'm trying to illuminate a critical flaw. We HAVE to tone-down these folks, they are driving us off the cliff. We have NO economy. It's a Fed Funded pool where self-absorbed fools go to offices and push paper and buttons, donate our former pay to charities and take time off to run in races wearing flag-wear. It isn't REAL. What IS real is the ticking off of not-psychopaths to the extent where normal people lose all hope and act out of desperation. 220 years ago, they tore a jail down with their bare hands and beheaded the royalty. It took nearly 50 years to rebalance what inflationists, false elitists and psychopaths damaged. Inevitabilities are REAL. False-funded economies are not.
Apr 28, 2013 10:04PM
Two storylines have been doing the rounds since gold plunged, designed to keep bullish hopes alive. 

One is that the supposedly huge disconnect that exists between the paper and physical gold price is going to lead to a massive ramp in the price. If such a price differential did exist, then Big Money would arbitrage it away. But they are not.

The other fairy tale is that as gold is going to $11,000 or $50,000 eventually, you should not therefore be upset if the price drops a mere 30% over the short to medium-term, as you are “in it for the long haul” or “in it to win it” etc.!!  

In an attempt to avoid Alice in Wonderland type fantasizing and just to play along – sure gold could go to $50,000 if there is hyperinflation, but this is still some way off even if it’s brewing and there is not a deflationary implosion first, and anyway it not such a big deal when it takes a wheelbarrow full of banknotes to buy a loaf of bread. 

If it’s hope you want, nip down to the local store and buy yourself a lottery ticket, it’s a lot cheaper. 
Apr 29, 2013 4:01AM
One of the most common statements these days is that nobody knows and or that nobody knew. We hear it anywhere from finance, to everyday news, to sports. It's literally the dumbest thing folks in the Mainstream Media say these days. That brings me back to the Markets. Maybe I don't know when and maybe you don't know when. That hardly means that someone doesn't know when. We have access to a very limited amount of information concerning Global Events. There are some folks that have far far more information.

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.

Apr 29, 2013 11:02AM

"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!!!

Apr 28, 2013 9:55PM
Soon the gold bugs and gold hoarders will be jumping off very high ledges or will commit Hara Kiri; we will witness a Gold crash of gigantic proportions as the 1929 stock market crash. Hail to fiat as it is the King now. Deflation Rules. Gold to under $500 where it belongs now.
Apr 29, 2013 1:30PM
Yes, we are extremely close to the market top! -
Apr 29, 2013 8:13AM



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.

Apr 29, 2013 11:48AM
Warren buffet responding to the secret of his success: " I always sold too early".  I personally have been moving from an 70% equity position to a 75% cash position.  I'll finish up liquidation over the next two weeks and reevaluate this fall......happy with 2013 gains to date.
Apr 26, 2013 10:04PM

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%

Apr 26, 2013 8:41PM
   " At the time of publication, Bill Fleckenstein owned gold".

 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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Image: Bill Fleckenstein, MSN money

This column is a synopsis of Bill Fleckenstein's daily column on his website,, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.



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