4/29/11…the importance of being contrarian

U.S. Consumer Spending Rose 0.6% in March, Consensus +0.5%, +0.9% from a Year Ago; Incomes Rose 0.5% but due to Bonus effect Wages/Salaries rose 0.3% vs 0.4% in Feb. Savings Rate steady at 5.5%. PCE Price Index rose 1.8% y-o-y

Bloomberg Top Stories:

*Dollar Weakens on Economic Outlook; U.S. Stock Futures Advance on Earnings

*Europe Probes Goldman Sachs, JPMorgan, Investment Banks Over Default Swaps

*Buffett to Face Questions for Calling Sokol Extraordinary Before Departure

*Coffee May Rise 40% on Brazil Frost Risk as Kraft, Smucker Increase Prices

*Alcatel-Lucent Is Laughing Stock No More as CEO Verwayen Brings Back Buzz

*Egypt May Open Border With Gaza Strip as Israel Expresses Concern on Hamas

*Obama Bids Farewell to Space Shuttle as Florida to Lose Thousands of Jobs

Yesterday’s volume of 961 million shares for a second straight session marked the 28th straight below average volume day (1.1B) – Mondays 697 million was the LOWEST in that entire period. The major indices varied with the Dow +0.6%, Transports +1.2%, S&P 500 +0.4%, and Russell 2000 +0.4%, but the two Nasdaq indices were little changed at +0.1% and -0.2% respectively. Advance/Declines and Breadth ran +1.2x or so and new 52 week highs surged to 545 while new lows were steady at 46.   

The Dollar continued its slide and overnight had another new low of 72.83, lowest since 7/29/08, The last close above 76 was on March 30th and it has been almost straight down since, off 4.3%.. Since April 14th the long bond has been in a range of 4.47% to 4.39% and is now 4.40%, while the 10 year note continues to improve and is now 3.29%, breaking below the old range of 3.41% to 3.31%. Gold posted yet another new high overnight at $1541.00, and is now $1537.40 +$6.20…silver is nearing the 4/25 high of $49.845 with major resistance at $50. Crude is at $113.27 +.41, its third attempt to take out the 4/28 high of $113.97.

Global equity markets are mixed for a fifth session: FTSE +0.1%; CAC 40 -0.1%; DAX +0.3%; Nikkei closed; Hang Seng -0.4%; Korean Kospi -0.7%; Indian Sensex -0.8%. U.S. Futures: DOW +23; SPX +2.30; NDQ +1.25.

…and earnest! Yesterday, perma-bear David Rosenberg turned bullish or so his former firm Gluskin, Sheff says. This reminds TB of when Rosie was a Merrill and coming from Canada was prone to be negative…read bearish. A good friend and bond trader mentioned to him that it might be wise in a firm with a large retail base to not always be bearish. He never changed however, although he was proven right in 2000. The perma-bears are falling by the wayside…TB remains however.

But what is the value of being a bear, especially a perma-bear? Like real estate there is no upside in being bearish on equities since other than some options traders and salesmen with short-sellers, you only make money when you SELL product. IF you give a client an honest opinion that a client shouldn’t buy, yet they believe you are wrong, rather than be embarrassed they will probably buy their home or stock from another broker. That is the downside to being honest.

So in a world of bulls, it is helpful to have people express their contrarian opinions rather than hear the same old blather from everyone else. TB doesn’t want you to accept his opinion but to consider his points and then YOU decide…it’s your money afterall…and your future.

How many of those who were so confident in 1987, 1998-2000, 2007-2008, said ‘gee I was wrong.’ None…worse are the money managers who rode the stocks all they way up – without rebalancing – then watched their paper profits erode into major losses while doing nothing. Furthermore, how come they are never available to talk when things go wrong but eager to on rallies?

TB has always said that client always ask questions at the wrong time (managers and brokers who are avoiding them would agree). If the S&P is up 5% and your manager is up 10%, why not say ‘atta boy…how did you do it?’ THEN listen to what he says…was it luck? Did he take excessive risk to do it?…or was he like Madoff who couldn’t even explain it yet experienced money managers dumped their clients money to him…for a kickback – oops referral fee – of course.

Instead, clients gleefully tell friends at cocktail parties how well their manager is doing…until he doesn’t…then they sulk.

That is where contrarians come in…by saying ‘if it’s too good to be true, it probably is.’ Long live contrarians. But the worst thing about being a contrarian is being too early to the party…it goes on longer than you think and then just as you throw in the towel you are proven correct. That is not a good reason to be a perma-bear but to capitulate when you still believe you are right makes you feel like the ‘mark’ after being dinged by the con man.

. . .  – – –  . . .    . . .  – – –  . . .

Just the beginning of the season and the U.S. from St. Louis to Alabama has already been hit hard leaving billions in damage and hundreds dead in their wake. Meanwhile however it is HOT in Omaha as the Bershire weekend begins amid an SEC announced probe triggered by BRK’s own audit committee and a loving kissoff of the culprit by Mr. B. who it would appears has some ‘splainin’ to do.

Meanwhile, across the pond the Brits have found a way to forget their worries…until the tab comes in anyway…for the Royal Wedding: a country left with nothing but a dysfunctional family to focus on, but as they say “they may be a dysfunctional family but they are OUR dysfunctional family,” Stiff upper lip and all that…until the discussion of the royal allowance comes up for review.

Have a terrific weekend!

TB

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