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Thursday, February 11, 2010

When the contrarians become consensus

Attached is a link to a 1 hour video of a Russian Economic Forum - "Where is the money in 2010". Participants included Marc Faber, Nassim Taleb & Hugh Hendry, some of the most outspoken minds in financial markets. There were a couple of other talking heads that made piecemeal contributions to the debate but those three were the main players.

The question was put to each particpant - Where would you invest $100m for 2010? The sad thing for me as a contrarian is they were all, with the exception of Hugh Hendry, bullish on the same asset classes such as China, commodities, food etc and bearish on the USD, US Treasuries as mainstream financial media & particpants are.

In my opinion, when even the usual contrarians join consensus you have a very crowded trade.

Now being contrarian does not make you right, it is a very lonely profession, when you are wrong, as people with this inclination are usually outspoken in their views (like your's truly) people love letting you know about it. When you are right nobody gives you a pat on the back.

I have harped on for some time now that given the extreme level of pessimism towards the USD it would not surprise me one bit that it will rally in 2010 against declining global equity & commodity markets.

I would like to point out the example of the tech bubble in the late 90s with the underlying fundamentals being that the internet was going to revolutionise the way people did business, spreading prosperity around the globe. This drove tech stocks to ridiculous price levels and then in 2000 the market crashed. Fast forward to today and the internet has a highly significant role in the way the world does business, the issue however is what price are you willing to pay for this. The facts are as the research of Bob Precther from Elliot Wave International (find out more to the right of this blog) attests is that GDP growth during this tech boom in the US was substantially weaker than the post World War II expansion in the 50s & 60s. Unemployment was higher etc. These are the facts behind the fundamentals.

It is my opinion that yes, long term the US is on a path of destruction, it has no manufacturing base, it has a disaster of a foreign policy and an overleveraged consumer. I have much more confidence in the future prosperity of places such as India, Vietnam, Brazil etc that have a productive base to grow off. The problem for me with that at the moment is that equity/commodity markets in these countries are fully pricing, if not overpricing in this future prosperity. Contrasting that they have priced the USD for imminent destruction. Timing is everything so I sit and wait patiently.

The markets so often move in the path least expected.

Hugh Hendry stands head and shoulders above the other panel members in his ability to articulate his point of view free of catch phrases, slogans and hyperbole so often the playgorund of the permabulls but now appearing to infiltrate the usually contrarian.

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