I was taught by contrarians before me that when the press — especially financial press — starts talking about one thing, it’s time to look to do the opposite.
Currently, we’re looking at the great Dow 20,000 headline that has reached every financial publication and constitutes a ‘watch’ on all the financial networks.
People say it’s the Trump Rally. Or simply the fact that Clinton and the Democrats will not be in power anywhere in Washington for at least two more years.
This kind of optimism may play well in the press, but it doesn’t play well in your investment portfolio. Just as everyone is talking about a giant rally and an accelerating recovery, it could all fall flat. Then the press will be talking about some “Great Crash” or the fact that the markets were overvalued all along and this was just a matter of time.
They’re never going to be wrong because they’re telling you what’s happening now, not in the future, and in any case, it doesn’t really matter to them. They’re making money off content, not managing an investment portfolio.
Don’t listen to them. It’s as simple as that.
Instead, think about doing the opposite of what the herd is doing. In this specific case, I’m talking about not buying into this giddy optimism. Sure, it feels good now, but it’s not happening for the reasons you think.
The key reason we’re in rally mode is the money managers and traders are trying to rack up serious gains by the end of the fourth quarter. Their bonuses come out of these results.
Trump might have been elected and he has a Republican House and Senate, but that doesn’t mean everything is going to be awesome.
Politicians are vain creatures and they’re all power-hungry and status-hungry.
With a political newbie in the White House, you can be sure there are going to be significant skirmishes among Republicans trying to control the direction of legislation.
And given Trump’s lack of a record on managing policy issues, we have no idea where he is going to zig and where he will zag. And as you can tell from the current breathless coverage of his every tweet, each real decision he makes will be the subject of numerous news cycles.
The reality is, we are living in world of divergent “facts.” We have record low official unemployment but on the other hand, we have a record amount of people who have given up looking for work, and they’re not counted in official numbers.
We are in the midst of a “recovery” … but productivity and wages are at historic lows.
And while all this is going on, the Federal Reserve raised interest rates, which is not going to help Americans that are already trying to make ends meet and have record amounts of debt.
It’s in these contradictions we get a real view of the world. We’re not on the brink of an economic recovery. Whatever Trump does, it won’t have any significant effect on the economy for at least a year. In Washington, the operating theory is it takes a year or two to get your sea legs as president and then you only have a year to do anything before you have to start your re-election campaign.
Don’t bet on this market, or the politicians in Washington.
Look to what’s out of favor — especially gold and silver. Barron’s recently talked about the bullish prospects for silver in 2017. Industrial demand will drive some of silver’s upside as will the minor fact that major banksters like Deutschebank have admitted to rigging the silver market since 1999, costing investors an estimated $30 billion.
Banks that were in on the fix were making 100 percent annualized gains. And now it’s over (hopefully).
And while the financial press talks about how gold is doomed because there’s no interest in gold as a store of value in the good times we’re in, it’s not a given that we’re in good times. If we see weak GDP growth in the first part of next year, all bets are off on the economy as far as I’m concerned.
Oil prices aren’t going up because of demand, they’re going up because supply is being cut. There’s a big difference there. We’re seeing higher inflation because prices of things related to energy (remember, they took actual energy out of the inflation numbers) are rising, and rents are rising. It’s certainly not because consumers are flush with cash and spending more. Case in point, even if you include the online sales this year, this holiday season has been unspectacular for retailers.
As I said a few weeks ago, gold and silver may look like red-headed step children in all this mania, but don’t believe it. This is when you put your contrarian pants on and buy, while everyone else is selling. If you’re in it for the long term, it’s the smart move.
— GS Early