Rosenberg Roasts The Roundtable Of Groupthink
It appears that when it comes to mocking consensus groupthink emanating from lazy career 'financiers' who seek protection from their lack of imagination and original thought, 'creation' of negative alpha and general underperformance (not to mention reliance on rating agencies, only to jump at the first opportunity to demonize the clueless raters), in the sheer herds of other D-grade asset "managers" (for much more read Jeremy Grantham explaining this and much more here), David Rosenberg enjoys even more linguistic flexibility than even us. Case in point, his just released trashing of the latest Barron's permabull groupthink effort titled "Outlook: Mostly Sunny." And just as it so often happens, no sooner did those words hit the cover of that particular rag, that it started raining, generously providing material for the latest "Roasting with Rosie."
From Gluskin Sheff:
Consensus Creates A Contrary Call
When the experts and forecasts agree, something else is going to happen."
Bob Farrell's investment rule #9.
Did the folks at Barron's intentionally lob a ball right into my wheelhouse? The front cover says it all — Outlook: Mostly Sunny. Check it out. Any perma-bull out there right now should be trembling by the front cover effect. This is no different than the fabled Death of Equities in the 1979 Businessweek, the Economist front cover calling for oil prices to basically head towards zero circa 1998, and the front cover of Barron's a decade ago saying That's All, Folks when it came to interest rates supposedly bottoming out. Come to think of it, Barron's ran with Dow 15,000 on its front cover back on February 13, 2012, and last we saw, at the nearby peak in early April, the blue-chip index closed 1,700 points below that threshold (and has been roughly flat since the date of that article).
What Barron's is referring to here is the latest Big Money poll that it conducts semi-annually. The actual title of the article (on page 25) is Reason to Cheer. Reason to cheer? About what? Margins being squeezed? Profit growth practically evaporating? Earnings downgrades still significantly outpacing upgrades? The recovery so excruciatingly slow that senior members of the Fed are contemplating QE3? Insolvency of Spanish banks? Hard landing risks in China? The 2013 fiscal cliff? The fact that over 60% of the data in the past two months have surprised to the downside?
The results of the Big Money Poll were startling:
- 55% of the portfolio managers are either bullish or very bullish. Only 14% are bearish or very bearish.
- Financials and technology are the favourites, with 31% citing both as being the top performers in the next six to 12 months.
- Favourite stock ... Apple (surprised?).
- Utilities are seen as the worst performer — by 30% of those polled.
- With respect to Treasuries, 81% are bears, just 2% are bulls. How can yields rise in such a lopsided environment? I mean, who is there left to sell? This is a classic bullish contrary signpost.
- Bonds of all types are detested — 33% bearish on corporates while 14% are bullish; 35% are bearish on munis while only 12% are bullish.
- But ... 41% are bulls on real estate; only 10% bears are left.
- For gold, 39% bears and 30% are bulls. That is great— the one asset class that has been in a secular bear market for 12 years is adored (equities), and the two that have actually made you money over this time span (the bond- bullion barbell) is to be avoided. Go figure!
The latest market positioning by non-commercial accounts (proxy for what the hedge funds are doing) from the weekly Commitment of Traders report is also rather instructive (futures and options contracts combined):
- 10-year T-note: Net speculative short position of 130,045 contracts on the CBOT. As I said above, who is left to sell?
- DJIA index: Net long 13,285 contracts on the CBOT.
- EAFE stocks: Net short 440 contracts on the CME but this number has been coming down.
- EM stocks: Net short 4,787 contracts on the CME, also coming down of late as the shorts cover.
- Nikkei index: Net short 4,894 contracts and also on the descent.
- Copper: Net long 1,229 contracts.
- Energy: Net short 124,941 natural gas contracts on the NYMEX: net long 288,393 WTI oil contracts. Patient investors know what to do.
- Gold: Net long position has been cut in half since last summer to 146,833 contracts. The latest corrective action has been healthy as the earlier froth is gone.
- Silver: Ditto — the net speculative long position has been sliced 40% to 21,309 contracts.
- Euro: Net short 117,062 contracts on the CME (likely why the currency won't go down ... the bears are already all in that trade!).
- Sterling: Net short 13,456 contracts (and is enjoying a humdinger of a short- covering rally of late).
- Yen: Net short 57,984 contracts (if the Japanese government is telling you they want the currency to depreciate, we should probably take heed).
- Canadian dollar: Still has a net speculative long position of 37,873 contracts on the CME, which could hold back the gains.
It is viewed as a global darling. But the Aussie dollar still commands a net speculative long position of 48,902 contracts and the Reserve Bank of Australia is about to cut rates while the Bank of Canada seems itchy to raise them as they did in 2010 — so there could be an opportunity on the 'cross rate' here.
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