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The Rude Awakening
Chicago, Jan.18, hot stock picks .- I’ve got some beef with the definition of what the true contrarian stance should be in this market.
First things first: Contrarians ain’t always bears.
Next, a contrarian position gets you nowhere unless current trends are close to an important turning point. No use being short stocks in 1992 or anti-gold in 2000 — you’d have lost each time.
But right now, the market’s in a weird spot. Stocks have found a path higher (albeit with some twists and turns) since 2009. And you have two camps of thought here:
One says the market’s strong performance is an overextended bull rally that’s due for another serious correction right now.
The other tells you to forget about the last four years because it was a jumbled garbage rally in which average investors didn’t even participate.
Those who think we’re headed for disaster have some scary numbers for you. Take the first week of 2013:
About $19 billion flowed into stock funds. That’s the biggest one- week increase since 2008 (gulp) and the largest inflows since May 2001 (double-gulp).
Makes sense. Neither of these years brings up any warm or fuzzy feelings for any investor with a pulse who lived through the drama.
But you have to remember...
Crisis-dominated market conditions over the past several years.
Everyone has hated stocks since 2008.
“Gimme the bonds!” they said. “Heck, I’ll even go with that money market fund. I’d rather earn virtually nothing than risk losing a lot.”
That gives us more than five years of disgusted investors flipping the bird at the stock market in record numbers:
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But remember the $19 billion I just mentioned. The money that’s flowing into stock funds right now is an abrupt and important shift. For the first time in years, investors appear to be flocking toward risk. It’s early — but we could be looking at a tipping point here.
The contrarian bet is to ditch bonds. Then look to buy quality stocks.
It’s that simple. ...
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