It Would Have Happened Already, Redux

by: David Merkel, CFA

I went to a set of presentations at Towson University recently and heard two panels on the investment outlook — one domestic, one international. What fascinated me was the relative unanimity of opinion. All or almost all agreed that:

  • Bonds are overvalued.
  • Stocks are slightly undervalued. Large Cap Value is attractive.
  • Commodities, especially gold, are a bubble. ETFs are driving that bubble.
  • Interest rates will rise soon.
  • Avoid emerging markets.
  • Inflation is coming.

As I listened to the relative unanimity of opinion, I began to think, "Okay, what can go wrong with this?" If they are all invested to reflect these outcomes, maybe we will see things run more against them before an eventual correction takes place.

I think that some of what I heard at Towson University this evening does express the consensus for a number of markets. Now the consensus is not always wrong — in the middle of a move the consensus is usually right. But these calls, aside from equities, call for a change in direction.

Beyond that, a rise in bond yields would increase competition for stock valuations.

Also, some agreed that the dollar was the best of a bunch of bad currencies, and would remain as the global reserve currency. But then they said that commodities were a bubble. Okay, stop. If you say that all major currencies in the world are bad, what will you do to maintain purchasing power? Buying commodities no longer looks so bad. Commodities become what most currencies aren’t — a store of value.

I did not hear one argument for deflation this evening, nor did I hear anyone discuss the overindebted nature of the American public. There were many, many comments about the overindebted U.S. government, but few comments on how it would affect other U.S. investments.

Look, I am not saying that those in the panels are wrong — some of those biases are mine. But when you hear little difference in the spread of opinions, it should make you re-examine your theses, because it is possible that all money has been committed to an idea, and even if the idea is right, we should see a counter-rally the other way before the smart money is proven right.

In closing, remember, if it were certain, prices would have adjusted already. What this says is that we are not certain.