from a guy across the pond. His name pops up from time to time in John Mauldins' musings. He hails from South Africa, and his name is Prieur du Plessis. The WSJ blog picked up on this incredibly rookie-like statement. Click here for the WSJ piece. Here's the actual excerpt:
Prieur du Plessis, in his Investment Postcards from Cape Town blog, says it hasn’t looked this bad in all his years. “Not since buying my first stocks in 1968 have I experienced the stock market outlook to be as murky as we are experiencing today,” he writes. “The fears are well documented and, in short, include lingering concerns about the financial system, a US economy on the doorstep of recession, and mounting inflation worries.”
Why do I call this a "rookie-like" comment?? The part that gets me is this: "The fears are well documented." I bolted out of my seat and almost wanted to load up on S&P calls when I read that. Why? Simple - the stock market discounts all known information - as it trades well in advance of facts, pricing in today what will happen in 6 months. Frankly, the market outlook is always and everywhere murky, it's never ever easy, a sure thing, something so crystal clear that we can invest today with 100% confidence in the outcome. However, the market is terrific at discounting the future, and the level of bearishness and the cacophony of noise surrounding recession, subprime, inflation, the dollar, etc etc., is such that it is more likely the surprise will be these things aren't as bad as once thought, and the investor out or short the market will get caught looking the other way. Therefore, the path of least resistance could be higher, as those short or in cash are forced to cover or get long as things ultimately turn out much better than once feared. This is perverse thinking, but that's exactly how it works on Wall Street. Again, the key point is the "known information" part...markets move on new information...so we'll watch and wait for new information and see how it impacts our positions. Good luck.
Subscribe to:
Post Comments (Atom)
1 comment:
John, I am naturally concerned about the contrarian message conveyed by everything being bearish. As a matter of fact, I said the following on Sunday: “The past week was characterized by an avalanche of bearish reports and for the first time since the start of ‘Words from the Wise’ three months ago not a single positive item regarding the US economy/markets made its way into the article. This should normally start flashing a signal to contrarian investors.”
I am certainly not precluding the likelihood of a rally and said that much in the article. However, my concern on a longer-term horizon is the extent of the proverbial iceberg that has not yet been discounted by the market.
Fact remains, this is an exceptionally difficult market to read and play.
Lastly, keep up the good work with the blog. I enjoy your posts.
Post a Comment