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Guest Post: The Contrarian Indicator Of The Decade?

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Submitted by John Aziz of Azizonomics

The Contrarian Indicator Of The Decade?

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.

Sir John Templeton

Buy the fear, sell the greed. Since bottoming-out in 2009 markets have seen an uptrend in equity prices:

Now it seems like the euphoria is setting in. And in perfectly, deliciously ironic time, as shares of AIG — the behemoth at the heart of the 2008 crash — are returning to the market. Because reintroducing bailed-out companies to the market worked well last time didn’t it?

Joe Weisenthal:

Markets are down a hair today, but the theme of the morning is clear: Uber-bullishness. Everywhere.

 

This is the most unanimously bullish moment we can recall since the crisis began.

 

Note that this comes as US indices are all within a hair of multi-year highs, and the NASDAQ returns to levels not seen since late 2000.

 

Big macro hedge funds, who have been famously flat-footed this year, are now positioned for a continued rally.

Bank of America’s Mary Ann Bartels:

Macros bought the NASDAQ 100 to a net long for the first time since June, continued to buy the S&P 500 and commodities, increased EM & EAFE exposures, sold USD and 10-year Treasuries. In addition, macros reduced large cap preference.

J.P. Morgan’s Jan Loeys:

We think the positive environment for risk assets can and will last over the next 3-6 months. And this is not because of a strong economy, as we foresee below potential global growth over the next year and are below consensus expectations. Overall, we continue to see data that signal that world growth is in a bottoming process.

SocGen’s Sebastian Galy:

The market decided rose tinted glasses were not enough, put on its dark shades and hit the nightlife.

And the uber-bullishness is based on what? Hopium. Hope that the Fed will unleash QE3, or nominal GDP level targeting and buy, buy, buy — because what the market really needs right now is more bond flippers, right? Hope that Europeans have finally gotten their act together in respect to buying up periphery debt to create a ceiling on borrowing costs. Hope that this time is different in China, and that throwing a huge splash of stimulus cash at infrastructure will soften the landing.

But in the midst of all that hopium, let’s consider at least that quantitative easing hasn’t really reduced unemployment — and that Japan is still mired in a liquidity trap even after twenty years of printing. Let’s not forget that there is still a huge crushing weight of old debt weighing down on the world. Let’s not forget that the prospect of war in the middle east still hangs over the world (and oil). Let’s not forget that the iron ore bubble is bursting. Let’s not forget that a severe drought (as well as stupid ethanol subsidies) have raised food prices, and that food price spikes often produce downturns. Let’s not forget the increasing tension in the pacific between the United States and China (because the last time the world was in a global depression, it ended in a global conflict).

It would be unwise for me to predict an imminent severe downturn — after all markets are irrational and can stay irrational far longer than people can often stay solvent. But this could very well be the final blow-out top before the hopium wears off, and reality kicks in. Buying the fear and selling the greed usually works.

 

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Mon, 09/10/2012 - 17:39 | 2779911 Aziz
Aziz's picture

Just to be clear so no-one is confused — I am not quoting Weisenthal as an authority, I am quoting him because I see this uber-bull call as his Jim Cramer "Bear Stearns is fine" moment.

Mon, 09/10/2012 - 17:47 | 2779923 A Man without Q...
A Man without Qualities's picture

If a pigeon shat on his head, Weisenthal would see it as a bullish sign....

Mon, 09/10/2012 - 18:03 | 2779968 flacon
flacon's picture

I just sold my 401K and went all in on pets.com, webcrawler.com, Netscape and Budweiser.

 

Do you Yahoo!?

http://www.youtube.com/watch?v=QKHjIq5Ieec

Mon, 09/10/2012 - 18:06 | 2779985 malikai
malikai's picture

http://i.imgur.com/5XLm4.jpg

This is the guy who sold you those stocks.

Mon, 09/10/2012 - 18:13 | 2780003 Conrad Murray
Conrad Murray's picture

Always on the watch for the misguided and undecided.

Mon, 09/10/2012 - 22:06 | 2780554 AldousHuxley
AldousHuxley's picture

nostalgia for MAX PAIN days in 2009

 

then government bailouts ended that party.

 

 

Mon, 09/10/2012 - 19:12 | 2780170 Tippoo Sultan
Tippoo Sultan's picture

Shades of Money McBags.

+1

Mon, 09/10/2012 - 21:41 | 2780508 cosmictrainwreck
cosmictrainwreck's picture

comment expunged <something about a DICK-HEAD>

Mon, 09/10/2012 - 22:24 | 2780589 Stock Tips Inve...
Stock Tips Investment's picture

I think not yet given the conditions to qualify for "exuberant" or "high" at this time. There are "too many voices" announcing crises and cataclysms.

Mon, 09/10/2012 - 17:49 | 2779934 VonManstein
VonManstein's picture

apathy and delusion describe the market Aziz nor euphoria. its crawling up. there is no euphoria in the index's

another typical Aziz recycled piece of Frankenstein journalism, borrowing as much as possible from others and hashing it together with you own little narrative.

really not interesting. ZH is well above this kind of thing.

Mon, 09/10/2012 - 17:53 | 2779950 DoChenRollingBearing
DoChenRollingBearing's picture

If Italy's economic situation (really bad) somes soon to America, ANY of you will be glad to have been bearish as well as have bought gold.  More on Italy and her plight when I am back home.  VERY sad, VERY bad.  NOT bullish, IMO.

Mon, 09/10/2012 - 17:57 | 2779960 Aziz
Aziz's picture

No euphoria, no.

Just QE3,4,5,6 all priced in, and the complete delusion that America has somehow decoupled from the rest of the world, that China will have a feather soft landing and that Binyamin Netanyahu is a peacenik.

Mon, 09/10/2012 - 18:11 | 2779998 VonManstein
VonManstein's picture

Euphoria is just the wrong word mate sorry. Europhia suggests, jubilation in a pathological maniacal sense.. to me this market is creeping up praying for the next bit fo "good" (or bad) news to gain a few pips. please. Euphoric it aint. Euphoric is mania blow off top phase. get a grip. you just writing for the sake of it. you read that quote, enjoyed it and thought youd put in an article, somehow. nice quotes dont make articles interesting or even true.

and i never read about soft landings in china.. i only hear of hard landings, housing bubbles and municipal debts.. what are you talkng about?? And the fact tht market is priced in (acording to you) QEn and is still limping up to old highs means it just aint happening. its a ghost zombie market accept on FOMC days.

you watch CNBC too much

Mon, 09/10/2012 - 18:41 | 2780041 Aziz
Aziz's picture

I haven't watched CNBC for over 5 years.

100% S&P gain since March 2009 is an uber-bullish move. That reflects more manipulation and HFT levitation than even underlying sentiment (let alone underlying value), but that's not the point. All I am saying is that shit is coming. The steam is running out. Central planning doesn't just make problems disappear. Zombie markets can crash, too. 

Mon, 09/10/2012 - 18:47 | 2780091 VonManstein
VonManstein's picture

blabla stop making excuses. the market is broken i know we all know. all i said is its not euphoric out here and you should select your choice of words more carefully, rather than just finding an appropriate quote to fit them with.

and if you look at a chart slightly longer than the one you provided it will tell a much different story. that being no gains since 2000. just a few collapses and "recoveries" .. just because some talking heads spout bullish drivel it doesn't make the charts, investment landscape or even sentiment bullish

keep up the good work though youth

Mon, 09/10/2012 - 18:09 | 2779993 malikai
malikai's picture

I always love to see people who provide no value of their own comment on the value others provide, for free.

Perhaps Mr. Aziz will provide you with a full refund for his service.

Or, perhaps you will come up with some content of your own.

Perhaps not.

Mon, 09/10/2012 - 18:10 | 2779996 Aziz
Aziz's picture

Would you like your refund via paypal or bitcoin malikai?

Mon, 09/10/2012 - 18:16 | 2780011 Conrad Murray
Conrad Murray's picture

What can one purchase with bitcoins?

https://en.bitcoin.it/wiki/Trade

Mon, 09/10/2012 - 18:20 | 2780024 malikai
malikai's picture

Speaking of BTC, I hope you have been watching it lately. It turns out there's some outfit: http://www.butterflylabs.com (down now due to godaddy) which is about to start selling fpga/asic mining rigs. It should be interesting to watch Butterflylabs's performance as well as the BTC crosses over the next couple months when those start going online. Those rigs are going for $30k+ a pop and geeks are doing the math on them.

Mon, 09/10/2012 - 18:22 | 2780032 VonManstein
VonManstein's picture

my own content sir, can be found at http://theinitiativegroup.org/ its something i dropped within a month of starting when i realised i really don't want to be a blogger, and instead will leave it to others better than me. Nothing against Aziz just some of his material is not interesting or informative, to me ZH represents valuable information. this wasn't. nor was it entertaining.

If Aziz is an itelectual he should probably enjoy my critique, value it perhaps. And he knows I'm right on this one he hashed this article together in seconds and he knows it. no research. no analysis. nothing of real value/.

and i did offer my own brief opinion.

Mon, 09/10/2012 - 20:49 | 2780402 Colonel Klink
Colonel Klink's picture

There is no market, it is only you who bends over.

Mon, 09/10/2012 - 17:57 | 2779964 whatsinaname
whatsinaname's picture

What goes around comes around ? Here is an old ZH article -

http://www.zerohedge.com/news/inhibitex-deal-leaked-or-just-exceptional-timing

Inhibitex's drug failed in trials sadly.

Mon, 09/10/2012 - 17:39 | 2779913 VonManstein
VonManstein's picture

zombies are not euphoric

Mon, 09/10/2012 - 18:38 | 2780072 Aziz
Aziz's picture

Yes perhaps this is a centrally-planned zombie euphoria, but look — 100% S&P gains over 2.5 years. Do the same principles not apply to zombie rallies? Is Weisenthal claiming we're set for 3-6 months more gains not a good indicator that actually the zombie rally may be over?

Mon, 09/10/2012 - 18:52 | 2780122 VonManstein
VonManstein's picture

"zombie euphoria" to me is an oxymoron. just let it go Aziz its fine. nothing to worry about.

 

Mon, 09/10/2012 - 19:17 | 2780183 Bastiat
Bastiat's picture

But HFT boxes are manic.

Mon, 09/10/2012 - 17:46 | 2779921 e-man
e-man's picture

I wonder if we have reached what looks like a permanently high plateau.

Krugman?  Krugman?  Anyone......?

Mon, 09/10/2012 - 17:49 | 2779935 trebuchet
trebuchet's picture

net longs  especially after last week's short squeeze.... while fundamentals are weakening - and everyone knows they are - is not a good sign....

you forgot to add + 8% inflation not priced in as yet.

 

 

Mon, 09/10/2012 - 17:50 | 2779938 Vegetius
Vegetius's picture

Hit on the hopium pipe, yeah baby!

They also said that artificial sweeteners were safe, WMDs were in Iraq and Anna Nicole married for love.

- Mr Rate

Mon, 09/10/2012 - 17:52 | 2779945 trebuchet
trebuchet's picture

all true !!! surely !!????...

Mon, 09/10/2012 - 17:54 | 2779959 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Drs once bled people when they were sick.  Now they prescribe drugs that make your kidneys bleed.

Forward!

Mon, 09/10/2012 - 17:52 | 2779942 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

We should start pricing all graphs in gold. 

How's that for recovery?

Mon, 09/10/2012 - 17:54 | 2779955 GernB
GernB's picture

Not to mention that large rising wedge shape often ends in a sharp downturn the goes all the way back to the bottom.

Mon, 09/10/2012 - 18:29 | 2780048 LooseLee
LooseLee's picture

For S&P, NASD, and Dow. I'm with ya, dude...

Mon, 09/10/2012 - 17:56 | 2779962 carambar
carambar's picture

What are you talking about!!!!  There is no Uber bullishness.  ask your taxi driver where his money is invested.

Institution and individual are at best neutral on equities. Just a few comments from 2 talking heads doesnt mean anything.

I think the uber Bear are the one that push the market higher. they are so many and afraid of missing THE rally.

One far all admit that you are good at talking about yesterday events/news but average on forecast.

 

Mon, 09/10/2012 - 18:01 | 2779973 Aziz
Aziz's picture

QE3,4,5,6 already priced in not bull(shit)ish enough for you?

Mon, 09/10/2012 - 18:09 | 2779995 fonzannoon
fonzannoon's picture

Aziz, let it go. This is no longer about QE this or that. This is about psychology and the mind. People don't see what they don't want to see. It's easier that way. I try to wake up one or two people a day. Usually I get nowhere. It is what it is.

Mon, 09/10/2012 - 18:21 | 2780028 GernB
GernB's picture

Which is why sentiment is such a good indicator. Those caught up in it can't see it when it's right in front of their faces. We are at multi-year highs in the major indexes. in what could at best be called a shaky economic environment. We have several well known and thoroughly discussed potential catastrophies hanging out there. So well discussed that you can see people habituating to them. It is that habituation that makes people see them as less real as if somehow discussing them solves them. Murphy's law alone says you should be suspicious that any one of the problems has been fixed, much less all of them.

Mon, 09/10/2012 - 20:40 | 2780382 carambar
carambar's picture

when we where at a multiple years low, the same Uber Bear were still calling for more blood.

From the bottom to 1420 they called for blood. Granted there is not much upside at these level but you if you think we are ready for a plunge, dream on.

I agree, at some point people have to open their eyes and realise they misssed a big rally. Be patient, we will have an entry point, as usual.

 

Mon, 09/10/2012 - 18:31 | 2780057 LooseLee
LooseLee's picture

I hear nothing butt bullishness, fool....Where do you receive consciousness?

Mon, 09/10/2012 - 18:08 | 2779990 Fecklesslackey
Fecklesslackey's picture

CNBC is euphoric the FED is despondent ... Both can't be right ... which one is?

Mon, 09/10/2012 - 18:10 | 2779997 LBI Trader
LBI Trader's picture

I have to agree with  VonManstein and  carambar. I do not see any sort of uber bullishness. Apple down three percent, volatility spiking into the close, and last weeks AAII numbers show absolutely no bullishness on the retail level. Bull-Bear spread 10 week moving average still negative. The taxi driver question is great. Most of people i know do not trust market and are not rushing their paychecks to a broker to buy stocks with..

Mon, 09/10/2012 - 18:33 | 2780060 LooseLee
LooseLee's picture

Yep, the only bulls are the professionals....The ones "all-in". You bulltards amaze me with your lack of mental ability: dumber than a rock...

Mon, 09/10/2012 - 19:11 | 2780167 GernB
GernB's picture

I think it's because you're looking at it on a day to day basis, not the month to month basis, or even year to year basis. Apple falling 3 percent in one day, or one day of volatility spiking does not say anything about whether the market is at high levels of bullishness relative to the past 5 years. VIX under 20 for two months straight does. Apple near at all time highs does. 

It doesn't really matter what people think who are not in the market or unlikely to be in the market. I could have asked the same taxi drive if he trusted the market in 1995 and he's probably say no. There are numerous other actual indicators of bullishenss such as C.O.T. Insider trading, mutual fund cash levels, Rydex etc, many showing elevated levels of optimism. Optimism is not extreeme as of today, but wait till the market rebounds from the sell off that began today.

Mon, 09/10/2012 - 18:14 | 2780006 Scalaris
Scalaris's picture

Barring an event involving tomorrow's Bild frontpage, quoting Mrs Angela Merkel announcing that Germany is finally bidding auf Wiedersehen to Eurozone, I cannot think of any a feasible justification for any further monetary easing, particularly with markets cruising at all-time highs.

So, I'd like to know why almost everyone is considering the possibility of one.

Mon, 09/10/2012 - 18:20 | 2780026 fonzannoon
fonzannoon's picture

Because the economy sucks and the braindead idiots all over the place buy Bernanke's bullshit that QE has and will continue to heal the economy. Oh and without it we would all be running around with our hair on fire.

Mon, 09/10/2012 - 18:40 | 2780080 Scalaris
Scalaris's picture

Yes, if the consecutive quantitative easing operations' "trickle-down" effect to the broader economy isn't obvious, I don't know what is.   

Mon, 09/10/2012 - 19:09 | 2780161 Dan Watie
Dan Watie's picture

the only trickling down is Ben pissing down our backs and saying that it is raining.

Mon, 09/10/2012 - 18:35 | 2780067 LooseLee
LooseLee's picture

'Cause they're all BEARS!! Just read the retards posts...

Mon, 09/10/2012 - 18:31 | 2780056 disabledvet
disabledvet's picture

"nattering nabobs of negativism." not saying the Tylers Durden are wrong...actually I am saying that. Where is this optimism? Where is the euphoria again? We haven't even made it TO the skepticism phase yet. We do NOT have QE...we have NOT had QE in two years now. I think The Bernank...besides understanding "thou shalt not QE while Republicans control the House" also as a wonderful expert on history understands "it didn't work in Japan...it won't work in the USA." We need INFLATION in the USA...we only have it in oil because of the War. That will change soon in my view because of the MASSIVE production coming on line from the Gulf and Brazil. The only reason medical costs are so high is because of Government as well...and the same goes for education. This will not survive the Winter. A wave of State and Municipal bankruptcies unlike anything ever seen is upon us...that will obliterate whatever little demand is left in this so called recovery. Having said that the resulting weakness if not outright collapse in the dollar should keep the bid in equities strong. Obviously the Fed will remain accomodative for years...and the Federal Government will continue spending as massively as ever on the war effort. The problem of "too much debt" is being solved with "more War."

Mon, 09/10/2012 - 18:35 | 2780068 Aziz
Aziz's picture

Is 100% S&P gain in 2.5 years not euphoric enough for you? Perhaps it is not "real" euphoria but instead is some kind of zombie centrally planned manufactured euphoria. Point is, it can easily dissipate and a guy like Weisenthal claiming that we are poised for 3-6 months more gains is a good contrarian indicator that maybe the time is soon.

Mon, 09/10/2012 - 19:03 | 2780146 techstrategy
techstrategy's picture

Aziz:

 

You are spot on.  I follow the MOMO crowd closely (short it actually).  Made a killing on CMG after fighting the tape for 6 months.  When the large holders saw what happened there, the decided to replicate CMG's relentless ascent from November everywhere else (look at how the reaction changed to earnings for all MOMOs).  It is basic behavioral investing.  They are anchoring everyone to the highest value possible for the fall in the Fall.  almost every one of theose stocks has risen an insane amount since June, almost without respite and certainly without allowing any gains.  This is one big capitaluation squeeze being framed as a new Bull market to allow the big boys to unload as much as possible from the upper deck of the Titanic before it sinks.

Selling vol brings the MOMO chasers in and it works u til it doesn't.  we are almost there.

W

Mon, 09/10/2012 - 19:11 | 2780166 Aziz
Aziz's picture

Strong analysis.

Mon, 09/10/2012 - 19:19 | 2780188 GernB
GernB's picture

Many experts on CNBC are crediting the statements and assurances of Mario Draghi for the dramatic rise in the market. So we've had a huge rise in the major indexes in the last month on the word of a technocrat. Yea, that's not optimistic. Not at all.

Mon, 09/10/2012 - 19:25 | 2780189 falak pema
falak pema's picture

almost is the sexiest word in this game.

The whole brief of Ben & Draghi is to make "almost" linger on until the markets say "I've come".  A good chair master on the Titanic deck can make "almost" last for days on end...he is chief bunga bunga master of ceremonies. The markets love him as much as Rudolf the reindeer.

I don't know what the sequel to that is; but something tells me its like 1929. Don't get left standing without a chair when that music stops. 

Mon, 09/10/2012 - 18:41 | 2780084 aleph0
aleph0's picture

Now I'm totally CONfused.

Mon, 09/10/2012 - 18:53 | 2780123 Black Markets
Black Markets's picture

 

We demand more demand.

 

 

Mon, 09/10/2012 - 19:11 | 2780168 Aziz
Aziz's picture

Aggregately.

Mon, 09/10/2012 - 19:17 | 2780185 falak pema
falak pema's picture

you can't, thats not cricket in a supply side economy. Only the banks are allowed to demand more, more, more...liquidity and insolvency galore.

Mon, 09/10/2012 - 18:53 | 2780124 techstrategy
techstrategy's picture

Exactly.  the decline in interest in equities is a secular shift driven by demographics (age, wealth and income distribution) and amplified by the anger with and distrust of Wall Street.  Money will continue flow out of the market. 

Wall Street is busy playing the sentiment swing trade games.  retail is scaling out along the way.

This early Sept period will prove to be just like early August last year.  wait until the world doesn't end, and then sell the crap outta everything in sight...

Mon, 09/10/2012 - 19:11 | 2780164 Michelle
Michelle's picture

Last week I heard that hedge funds are just 44% invested and YTD returns are lagging well below the broad indexes. If that's true then the market should go UP forcing short sellers to buy, thus creating a short squeeze. Why would anyone choose to SELL when there aren't enough "willing buyers" at these "over-extended" prices? Will a short squeeze produce enough "buyers" to allow the sellers to get out at a higher price? Maybe, but it's only until the money comes off the sidelines and hedgies are 90% invested that all hell breaks loose. Everyone is waiting for it and because of it, it won't happen. Why? Because it's too easy and too obvious. The rich only get richer because they know how to play the game and when you are playing poker with professionals, they'll wait until you're all in before the kill.

Mon, 09/10/2012 - 19:32 | 2780220 techstrategy
techstrategy's picture

There's only 1 problem with that -- hedge funds exist as an alternative to traditional long only strategies and they are designed to preserve wealth in markets that are not going up.  The hedgies LPs know this and are unlikely to pull significant funds except from those underperforming within their class.  In fact, my hypothesis is that the people with real money are slowly raising cash out of long only funds and will rotate into hedge funds as the market gets more obscenely valued.  after all, they are sophisticated investors themselves and surely reallocate when the risk / return gets so skewed.  

 

Mon, 09/10/2012 - 20:20 | 2780339 Michelle
Michelle's picture

I think your hypothesis may be correct, good call.

Mon, 09/10/2012 - 19:38 | 2780237 pamriallc
pamriallc's picture

SocGen isn't wrong.....they just didn't add the remainder of the statement.....

The market put on the sunglasses, went out for the nightlife...AND NO ONE TOLD MR. MARKET that it was 2am.

JUST GO HOME ALREADY....

Mon, 09/10/2012 - 21:20 | 2780471 Tombstone
Tombstone's picture

CNBC, like the government, has lost all objectivity in favor of pleasing the masses. You have to remember that it is nothing but show-biz run by the big-time sponors who only survive by sucking in the mainstream to be plucked and sheared.

Mon, 09/10/2012 - 22:02 | 2780548 q99x2
q99x2's picture

AIG is worth about the same as it was after the crash and I think they sold off the best parts since then. Maybe they'll reverse split it again once it goes under a buck.

Tue, 09/11/2012 - 01:05 | 2780839 Element
Element's picture

 

 

" ... let’s consider at least that quantitative easing hasn’t really reduced unemployment — and that Japan is still mired in a liquidity trap even after twenty years of printing. Let’s not forget that there is still a huge crushing weight of old debt weighing down on the world. Let’s not forget that the prospect of war in the middle east still hangs over the world (and oil). Let’s not forget that the iron ore bubble is bursting. Let’s not forget that a severe drought (as well as stupid ethanol subsidies) have raised food prices, and that food price spikes often produce downturns. Let’s not forget the increasing tension in the pacific between the United States and China (because the last time the world was in a global depression, it ended in a global conflict). ..."

 

And let's not for get this stock market isn't a market mechanism for investing in actual industrial production, it's just a rigged-casino that exists now solely because of massive USD and Euro debasement to prop zombie-banks full of toxic-assets. 

And just maybe the 'plunge-protection-team' have been protecting the wrong things, all along?

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