Calling All Aussie Contrarian Investors: It’s Time to Shine!

Calling All Aussie Contrarian Investors: It’s Time to Shine!

Smack. In the last session to end last week, US markets took their biggest hit since September 2016. A 2% drop.

Cue the bears and doomsayers to come out in force.

I’m even seeing William White trotted out again.

He ‘predicted’ 2008, according to The Australian Financial Review.


The name stands out for me. White also warned of a crash in 2016 and 2017.

I guess those calls weren’t as accurate, which could explain why they weren’t mentioned.

Amazing how many finance commentators are able to hang their hats on one accurate call, while all their duds are handily bypassed.

Your Daily Reckoning Editor makes no claim to predicting 2008…or the ‘next’ crash either!

Don’t let the news upset your strategy

Here’s the deal. A 2% down move in the US market does not mean the world is going to end.

From a historical perspective, the US market’s calm over the last 18 months is actually the strange thing… not US stocks having a down day.

The US market might go lower for another week…or even another month. Who knows?

But I just don’t see a major credit crisis happening.

Use the volatility to your advantage…and pick up any stocks you want to own on the down days.

The mainstream media is focusing on the rising 10-year yield in the US.

However, a (very rich) charitable trust in the UK just sold a century bond with a yield of 2.517%.

Oxford University got an even better rate for the same century term bond in September last year.

I’m not convinced massive higher rates are on the way, ready to kill off share markets around the world.

The action in the US also made me think of a Wall Street Journal report I saw in early January.

Here was the headline on 9 January…

Source: The Wall Street Journal

Put options are a defensive measure investors can use to protect their investments.

They cost money. The story said less were being sold at the time.

I wrote to a friend at the time: ‘Makes me wonder if a short-term drop is now primed if something triggers it.’

Still…let’s keep our eye on the long game here, not the short-term noise. When it comes to Aussie stocks, a lot of fundamentals are due to come out in the next two weeks.

Rio Tinto and CBA are two big names…plus many others. These numbers should ultimately prove bigger drivers this year.

CBA is actually due to issue a hybrid security next month, too.

The pricing on that will give us an idea if the action in US government bonds is likely to raise the cost of funding for Aussie banks.

It helps to remember that the Aussie market has not run up at anywhere near the same pace as the US…so it’s less likely to fall hard.

‘Melt up’ thesis still intact

I’ve made the case that US — and Australian — stocks are more likely to ‘melt up’ into a speculative peak than a major downturn.

But it won’t be a smooth ride.

Between January 1999 and March 2000, for example, the NASDAQ rose 130%.

However, there were five falls of over 10% in the same timeframe.

Any one of those would be enough to spook you out of your position…to question if it’s time to take profits…or simply keep you awake at night.

Investing always looks to be about numbers and valuations, and cold-blooded analysis…but emotionally it’s never so easy or clinical.

It’s also never been easier to check prices, or close or open trades, either.

If you get jumpy, you’re more likely to make a decision you’ll later regret.

Because often the biggest gains of a bull market come at the end.

Think about what we’re being told at the moment. The US 10-year note is hitting 3%…and this is a worry.

Well, it did the same thing in 2013 and the world kept turning. US stocks went on to rise.

I suspect the fact that rates are pushing higher is no surprise to the big investors.

The action in the US more likely stems from the large bets against volatility currently held.

The VIX (‘fear index’) took a big spike last week in the US.

Time will tell.

Ultimately, if you’re investing for the long term, know this: Rates are rising because economic growth is strengthening.

That’s a good thing! As I tried to show you last week, too, historically US stocks don’t get into trouble until rates go over 5%.

We’re not there yet.

This down move is a buying opportunity. I suggest you take it.


Callum Newman
Editor, The Daily Reckoning Australia