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We always find it important to test our
current market hypothesis against the prevailing market wisdom. Since we are
contrarians and tend to run against the herd, we constantly need to check
ourselves against the crowd to ensure our market assumptions are fresh and
unique.
That said, here is our contrarian stock
market investing guide for today:
• In the Bullish camp we hear a
lot of talk about how the markets will bounce back 'as they always do' from
the current slump. This Perma Bull outlook seems
unrealistic to us especially in light of the current unprecedented credit
problems. But it has consistently been the right outlook and the contrarian
within us says it may very well be the scenario that plays out simply because
it seems least credible.
• In the long-term Bullish but
short-term cautious crowd the consensus is that we have 2 more months of
volatility and corrective action before it's off to the races again. In other
words, a good buying opportunity is approaching later this year.
This crowd we do take seriously. Firstly
because it contains some long time market commentators who we respect and
with good track records. But secondly, in the face of all the doom and gloom,
end of world, credit crunch scenarios that the market has had thrown at it we
STILL have not had so much as a 10% correction in the major indexes.
Add into the mix the fact that the Fed
will open the sluice gates once things get really bad and it's a fair bet
that this middle of the road outlook may indeed be correct. Unfortunately,
we're just not the middle roaders - so onto the
bearish case...
• We are seeing some troubling
signs out there which are forcing us to be more cautious than the above 2
scenarios.
Firstly, we have constantly been
refreshing our views in 2007 crash market stock update. Now
we realize crashes are very rare but as detailed in the above article, the
similarities between today and 1987 are a little bit too eerie to ignore. However,
our hypothesis is based on the fact that long-term bonds will turn down and
soon. That has not happened in a material way yet, so we cannot confirm this
scenario is underway.
Secondly, the fact the yields on 30 day T-Bills
dropped through the floor last week indicates that nobody is brave enough to
put the Fed injected liquidity to work. Institutions have chosen to park
their cash in the safest instrument they know and adopt a wait and see
attitude for at least 30 days.
Now this of itself doesn't surprise us,
but what does surprise us is that for the longest time inflationists
have told us deflation is virtually impossible. Since the Fed can inject an
unlimited amount of money into the system and keep it afloat, deflation can
never happen. WRONG! Deflation is possible if nobody is willing to do
anything with the money the Fed has injected! And that's exactly what we're
seeing now. The term 'pushing on a string' comes to mind.
And thirdly, we are still haunted by Ian Gordon's K-Wave analysis
that in the Kondratieff Winter we experience a deflation AFTER a credit
crunch and debt is expunged from the system though defaults. BINGO! Are we
not in a credit crunch now?
As we showed in our article "Gold Stock Market Quote say BUY",
the fact that the yield curve has widened considerably (in no small part due
to the 'panic' into short-term paper) and Gold stocks have held above their 1
½ year support whilst major indexes have turned downwards, indicates
to us that we may actually be at the start of another 2 year Bear Market akin
to the 2000/2002 experience.
More commentary and stock picks follow for
subscribers…
Greg Silberman CA(SA), CFA
greg@goldandoilstocks.com
I am an investor
and newsletter writer specializing in Junior Mining and Energy Stocks. Please
visit my website for more free articles and analysis
Click here: http://blog.goldandoilstocks.com
This article is
intended solely for information purposes. The opinions are those of the author only. Please conduct further research and
consult your financial advisor before making any investment/trading decision.
No responsibility can be accepted for losses that may result as a consequence
of trading on the basis of this analysis.
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