Being a bear on the Street these days is some kind of hard business. While the bears continue to insist that the glass is half full and could shatter into a million pieces at any moment, the markets only race higher. Their dire warnings have turned up as empty as their honey pots.
So there they sit—wildly waving their arms from a lonely but noisy island called Contrarianism. It’s small place, far from shore, where the doom-and-gloom crowd trades scary stories about depression, contagion and the Great Pumpkin.
"Run for your lives," they shout one after another, drawing in only an occasional onlooker. Meanwhile, the folks on the shore quietly go about their business, pushing the markets higher.
But despite their own futility, they continue to shriek, trapped within a web of logic so rigid that it blinds them to actual market conditions. "It can’t happen," they say, but it does.
Their latest standard-bearer is Jeremy Grantham, a lifelong but occasionally bullish contrarian investor. He’s a legendary value investor and chairman of the Boston firm Grantham Mayo Van Otterloo (GMO). His company manages over $140 billion in assets.
He went over the top last week, wildly waving his gigantic bear flag at anyone who would look. Not surprisingly, it’s those frothy bubbles that keep him awake at night. He says that everything is a bubble nowadays.
Everything.
"From Indian antiquities to modern Chinese art," he wrote in a letter to his clients, "from land in Panama to Mayfair; from forestry, infrastructure and the junkiest bonds to mundane blue chips; it’s bubble time."
No asset class, according to Grantham, is safe. Cash, he says, is king.
Speaking to The Spectator in February, Grantham said, "For the moment I say don’t be too proud to own cash. You always feel there must be something you can own that will do better [than cash] and usually there is. In 15 years of asset allocation for clients, we have never once owned cash. We could always find something better—but now we can’t."
"The bursting of this bubble," Grantham warned, "will be across all countries and all assets."
A worldwide depression, in other words, is in the making. His sell everything logic was music to the ears of the bears.
But while the bears reveled in Grantham’s prediction and continued to forecast more rain, the bulls simply shrugged. They had other ideas. New highs were reached in practically every single market that could be found.
It was a stunning reversal. It was the bears, you may remember, who seemingly had the upper hand just eight weeks ago as the spotlight fell firmly on their gloomy turf.
But instead of being the start of a massive selloff in stocks, the February plunge has proven to be nothing more than a correction, confounding the bears once again.
And as we have said here before, the pullback was pure gift. Grantham & Co. may not have found value in the pullback, but numerous other investors did. Value, I guess, is in the eye of the beholder.
In fact, by crossing the 13,000 barrier last week, the Dow has regained practically all of its lost momentum and is flirting again with the uptrend that it began last summer.
But that doesn’t mean the current market is not overbought, because it is. No market, after all, goes straight up. And at this point we seem to be reaching the point of exhaustion.
In fact, a pullback now to the 12,800 level would hardly be surprising. And while that would re-energize the bears, like the correction it would probably be short-lived.
Contrarian Island is tough place to be these days. ‘Tis the wind and nothing more. Buy the dips.
The bears can wail all they want these days, but the markets are headed higher—for now at least.
Wishing you happiness, health and wealth,
Steve Christ, Editor
