华而街的基本思维方式 - 不随大流

One of the most pertinent (and successful) rules of thumb on Wall Street is that of moving or thinking contrary to the crowd. This is not because the crowd is always wrong – on the contrary, the collective wisdom of the crowd is very often right. But it is not terribly predictive, due to the very human tendency of extrapolating current or recent conditions forward. We tend to believe that since the market, economy, currency, stock, etc. has been going primarily in one direction lately it is more likely to continue going in that direction going forward. This is often referred to as momentum, a trading technique known better to some of us who have been in the business long enough as the “greater fool” theory.

Momentum would work very well if information was perfectly shared among a market’s participants, but that is rarely (if ever) the case. This makes turning points in a trend notoriously difficult to spot, and conflicting data often finds adherents on both sides. Case in point: Last August most of the U.S. financial press, and more Wall Street experts than are now willing to admit it, were adamant that the United States was entering a double-dip recession. The few voices that spoke against such a development were drowned out, although they were basing their predictions on a few critical, but at the time isolated, data points. Other examples of t his abound, whether warning about a tech bubble in 1999 or overheated real-estate markets in 2006. The point is that the crowd usually needs to see a preponderance of evidence that a trend is turning – at which point the trend has usually turned. Our recent thoughts – so far correct – on a rebounding U.S. dollar is another, more tactical example.

By now, you will have heard anecdotal evidence that the economy is improving, including an slow-but-steady improvement in the jobs picture, consistent strength in manufacturing numbers, decent retail figures, increasing consumer credit, etc. The stock market has responded in kind, reaching levels not seen since the financial crisis began to take hold in 2008. By all measures, the equity markets like what they see heading into 2011, although there is still plenty of evidence to suggest we are not out of the woods yet. It is a perfect example of the proverbial “wall of worry” – the crowd being “right” in worrying about all the things that are still going wrong while the markets concentrate – and price – all the things going right.

And the realities of the U.S. fiscal situation are such that President Obama’s “compromise” on the Bush-era tax cuts is really nothing of the sort, effectively adding an additional dose of unqualified economic stimulus into the mix. The extension of the tax cuts effectively reduces pressure on the Fed to maintain its quantitative easing program, although we do expect the full amount authorized under QE2 to ultimately be purchased. Interestingly, however, has been the effect of the tax compromise on the bond markets – the rosier outlook for the equity markets has resulted in a sell-off of sorts in bonds, with two-year bonds crumbling and 10-year yields cresting well over 3% - frankly, exactly the sort of thing the Fed has been trying to avoid. We’re pretty sure that the Fed is more than happy to see 10-year yields back near 3.5%, regardless of QE2, if that means the economy is growing again.

It is also worth noting that the improving U.S. economy and better outlook for stocks is having the requisite effects on the commodities markets. Oil is charging ahead and very likely to crest $100 by the end of 2011’s first quarter, while the rallies in silver and copper are certainly not going to be dampened by news the U.S. economy may be on the mend. Both remain at multi-year highs. And regardless of our thoughts about going against the grain when investing, there are occasionally major trends that look like runaway freight trains going downhill, and it is important to know the difference. Commodities trend is one of those trends. Regardless of how pervasive the opinion, the commodity bull market has much further to go, and as much as we like to play contrarian positions with well-established trends, we would not suggest taking one in this case. Indeed, as the U.S. equity market finally emerges from its two-year hibernation, we continue to feel that Cash Cow’s twin pillars of Asian equities and commodities are as established and uni-directional as any trend have ever seen in twenty years of market observation.

（from Dr. Stephen Leeb's e-mail）