Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Contrarian Investing - Being the 10th Man

Stock-Markets / Investing 2015 Oct 09, 2015 - 03:03 PM GMT

By: John_Mauldin

Stock-Markets

By Jared Dillian

I was going to give you this big macro rundown of what happened since the payroll number, but I changed my mind. Anybody can give you the play-by-play. Let’s talk about it in the context of true contrarian investing.

Being contrarian doesn’t just mean doing the opposite of what everyone else is doing. It means doing what is really unpopular and may make you subject to ridicule.


If you went on CNBC before the payroll number and said that you were a raging emerging markets bull, they would have put the clown nose on you and given you the hook.

And yet…

This may not seem like a big deal to you. If you are an individual investor, you can have the iShares MSCI Emerging Markets Index ETF (EEM) in your portfolio and lose money on it, and the only one who cares is you.

But if you run a mutual fund or a hedge fund, you have to file a 13F and then everyone can see EEM in your portfolio, and you have to explain to your investors why you have this dumb EEM position that everyone hates and that’s obviously going down—and if you lose money on indefensible things, it becomes difficult to defend your continued employment.

For example, if Nike (NKE) were to miss earnings and gap lower 15%, nobody would get fired, because everyone owns it.

But if you go down with the emerging markets ship, you are definitely getting fired.

So being a contrarian is hard if you’re a professional, because if you are wrong, you are wrong publicly, and you experience shame, and as we said before, shame is the most powerful motivator.

I did not pick up my moniker The 10th Man by accident. Do you know where it came from? It came from the zombie movie World War Z.

Spoiler alert: In the movie, Israel survived the zombie invasion because they employed a 10th man whose job it was to disagree when everyone else agreed. Israeli intelligence intercepted emails from India saying that they were being attacked by “undead,” literally, zombies.

Everyone in Israeli intelligence figured that the Indian government was using the word “zombies” to refer to something else.

The 10th man said, “What if they are actually talking about zombies?”

Leading up to the payroll number, we got a lot of ultra-bearish articles hitting the tape, but the Big Kahuna was the slickly produced Carl Icahn video, Danger Ahead, whose release perfectly coincided with the low tick in stocks.

His argument was compelling, as it always is. But the bearish argument is always most compelling on the lows.

It’s tough to take the other side of Carl Icahn. His market timing is almost as legendary as his activist investing.

Here’s the point: If Carl Icahn comes out with this video on the highs, he gets the clown nose and the hook. If he comes out with it on the lows, he sounds like a freaking oracle.

It takes a lot of guts to publicly call Carl Icahn a loser. That’s what I did in my professional publication, The Daily Dirtnap. There is often blowback when you do things like that.

I do not care. I have never cared what people think of me, which is my greatest asset.

If people want to think I’m crazy, fine by me.

I may only be right about half the time, but I seem to be right when everyone else is wrong, which keeps me out of a lot of trouble.

Consensus Thinking

Somehow, over the course of the last month or so, this idea developed that a rate hike would be good because it removes uncertainty.

What?

So people were cheering for a rate hike.

What?

Rate hikes are always, always bad for asset prices. Removing liquidity is always bad (in the short term). More liquidity is always good.

When the payroll number turned out to be very weak, it pretty much ruled out a rate hike for 2015 (and longer).

Two-year notes rallied the most in years, with yields dropping a full 20 basis points.

And stocks…

It wasn’t hard to identify the consensus thinking. As usual, it was wrong.

Operant Conditioning

The Bank of Japan is likely to quantitatively ease again, now that the Fed is not hiking. Now the Bank of England might not raise rates until 2017. Suddenly, we are once again in a world awash with liquidity. Gold is up quite a bit, and silver up even more (disclosure: I am long both gold and silver in a variety of forms, including GLD and SLV).

Wouldn’t it be interesting if we got a big precious metals rally? That would blow apart consensus thinking.

The dominant investment thesis is that a stronger dollar will murder emerging markets. What if that turns out not to be true? What if the dollar doesn’t strengthen, or all currencies weaken equally (relative to hard assets)?

This short EM trade is so old and so tired that people will stubbornly cling to it for the next six months, even in the face of overwhelming evidence to the contrary.

We’re not altogether different from the pigeons in B.F. Skinner’s box. If you could make money by pushing a button, how many times would you push the button?

Or: if you stopped making money by pushing the button, how long would you continue to sit there and push the button like an imbecile?

Inquiring minds want to know.

Jared Dillian

If you enjoyed Jared's article, you can sign up for The 10th Man, a free weekly letter, at mauldineconomics.com. Follow Jared on Twitter ;@dailydirtnap

The article The 10th Man: Being the 10th Man was originally published at mauldineconomics.com.
John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules