“The dollar is going to keep surging because the U.S. Federal Reserve will hike rates even as foreign central banks get easier” …
“Oil prices are going to collapse to $30 or even $20 because supply is overflowing and the dollar is flying” …
“Emerging markets are a disaster, and you should run away from them as fast as you can.”
Do any of those statements sound familiar to you? They sure as heck do to me … because they were the 100 percent, absolute, unfailing consensus remarks made by almost every single “expert” and economist on Wall Street a few months ago. I cannot remember more than one or two guests on CNBC, or in the financial press, taking a different stance.
The market positioning data from the Commodity Futures Trading Commission (CFTC) proved investors were putting their money where their mouths were, too! Speculators got massively long the dollar — the most long they’ve ever been — and ridiculously short oil and all of its derivatives.
|In 2005, there was a sure-thing, can’t lose attitude toward housing.|
I’ve been at this business, in one form or another, for almost 20 years. I’ve only seen this kind of sure-thing, hugely crowded thinking once or twice. One example that comes to mind is the “can’t lose” attitude toward housing in 2005. The other time was just before the turn of the century, when the sure-thing thinking was focused on dot coms and how they would rise to the moon.
So given the out-of-control extremes in sentiment and market positioning, as well as my analysis of the fundamentals and technicals, I made some major, major contrarian calls earlier this year. I suggested aggressively buying energy, closing out very profitable euro short positions and getting bearish the buck, and bargain-hunting in emerging markets.
I called it the “Big Reversal” … and I suggested a strategy of buying what you previously sold, and selling what you previously bought. Those big-picture themes are working out very well five months into the year, and I hope you’re benefitting from them.
|For Mike’s exact instructions on what to buy and sell in today’s volatile market, give his Safe Money Report a risk-free trial run.|
Indeed, I continue to like select currency, stock and bond plays in select markets in the Asia/Pacific region (particularly Australia) and South America (particularly Brazil). The iShares website lists several ETFs that will help you profit from rallies in those countries and regions. I’m also a big fan of the bargains you can still find in the energy patch.
Now I don’t know what the future holds. No one can say with 100 percent certainty. Maybe this turns out to be a corrective phase that reverses eventually. I don’t happen to think so, though — for all the reasons I’ve been laying out in Money and Markets. And even if that’s the case, you can make a heck of a lot of coin in the meantime by riding these trends!
Regardless of where the euro closes this month out … or where oil moves in the next couple of weeks … please take one lesson home from all of this:
Contrarian, independent thinking — which you DO NOT get from Wall Street but DO get from firms like ours — is an incredibly powerful thing. It’s a tool that you absolutely, positively need in your arsenal if you’re going to succeed in the investment markets. You can be darn sure I’ll do my best to keep delivering it to your inbox every day.
Until next time,