I love these poll results from Bloomberg. If you’re a contrarian, you’ll be licking your chops.
The pessimism about the global economy is so thick you can cut it with a spoon. And so many investors say they’re shunning emerging stock markets such as China, Brazil, and India that it’s clear to me that we’re approaching something like a bottom in those stocks.
The contrast with last January is remarkable.
Then a Bloomberg poll showed China as the favorite stock market in the world. Brazil came in second.
This quarter it’s the U.S. stock market in the lead with almost 40% of polled investors saying that the U.S. market presents the best opportunities in the year ahead. Brazil came in second at 29% with China third at 28% and India fourth at 27%. Russia, the fourth of the four BRIC economies, was picked by just 6%.
By the way, I don’t disagree with the assessment of U.S. stocks for the next six months. That’s why I added a dose of U.S. growth stocks to Jubak’s Picks in May. But now I think it’s time to look forward to the next market and to get set to buy in anticipation of outperformance by emerging market stocks not too far down the road.
According to the poll 42% of investors now believe that the global economy is deteriorating. Back in January the percentage was just 21%.
U.S. investors are by far the most pessimistic about the global economy with 58% saying the situation is worsening. Asian investors were the least pessimistic with only 35% saying that the global economic situation was deteriorating.
Investors across the globe picked the European Union as offering the worse investment opportunities in the world.
I’d have to say that I agree. I don’t see a reason to be a contrarian on Europe. Yet.
twoyrfixed,
SRS is one of my smaller holdings currently. I have twice as much in DRR and EUO.
Ed,
I would further put SRS in the category of shorting the ABX in 2005. In hindsight it looks awesome but at the actual moment (paying GS 250bp’s a year) it’s risky as hell. Clearly, SRS isn’t a position that should (my opinion only) constitute a large portion of your portfolio, any more than ABS shorts should have in 2005.
But, if you feel as I do, that we still have some more “black swan” events to come, it could be a small part of a much larger total portfolio.
emanas,
I generally agree with your statement, with the following exception. If you are expecting the possibility of a significant move in the leveraged asset underlying the ETF, then the leverage works to your benefit.
Granted, the daily ups and downs eventually wear out over time any benefit from the leverage, unless you see a steady movement over a period of time, which admittedly is rare although not unheard of.
In summary, you buy the leverage for either a quick hit or a steady movement (or the strong possibility of both).
I can sum up the reason for pessimism in one word- OBAMA
Comment on SRS, as well as all double/triple ETF’s: you have to be crazy to hold those for more than a day or two as the key point is that these ETFs provide leverage on a DAILY BASIS. Meaning, you can’t hold these for any length of time and expect to get double that markets return. It just doesn’t work like that. You will lose your shirt.
Jim Jubak
Your site would benefit greatly from having a forum. I am sure your webmaster is extremely busy so I am hereby offering my somewhat decent expertise to help setting one up if you are interested.
Jim:
Reuter said this morning that 40% of China AgBank’s IPO may be pre-sold to overseas institutions. Do you think this may signal good outcome of it, thus a earlier buy sign of Chinese stocks?
USDA and others:
I was optimistic (despite all the market turmoil) until few weeks ago when I realized that Europe’s mess will effect China’s export, thus the rest of the world. I became very pessimistic then. But in the last few days, I started to think that the worse the oil spill gets, the more cleaning jobs it creates and it may benefit the economy in some way.
I remember reading that FDR did not end the great depression, but the War did by all the war related jobs it created. (Large part of the country went to war production!) I think the immediate effect of the oil spill is loss of jobs, etc. However the cleaning up may create jobs. This also reminds me of an old saying that if you really want to create jobs, just burn down (meaning destroy) everything. (I am not advocating it!) Then you restart and rebuild everything. Both war and this oil spill destroyed everything, but we can restart too. Just my 2 cents.
rolfer1,
You need to note where SRS was 3 years ago: In the peak of the real estate market’s meltdown. That’s why it’s dropped so much. That also tells you how high it can go too.
I have to run now so I don’t have time to pull up the data, but if you look at where both of these were at their peaks, SRS had a much higher peak percentage-wise.
GlassWizard – 🙂 I agree, less testosterone in power would be interesting indeed.
EdMcGon – SRS returns have been –184% (v. -200% modelled) over 3 years; don’t know what DRV’s actual returns have been (inception date in December 2009, so only sparse data available to date). I’m curious about your “broken” comment — charts for both short ETFs look similar.
USDAPortfolio – you truly must be optimistic -“when next quarter’s numbers meet forecasts”. Q1&2 in 2009 were weak, quarterly comparisons become much more difficult in Q3&4 of this year than they were in Q1&2. I would agree that a boost in their share prices will result for those companies that actually beat estimates (market analysts’ estimates/expectations, nay CEOs’) – Wall Street reacts to unanticipated earnings/news.
Ed,
Completely agree that about not rushing into having a list done. Still am interested on your thoughts about Canadian stocks, AGU,CNI,FRG.
Ed,
Decided to get some FCX tomorrow as well as holding onto VALE, IMPUY, and TC (I know you not a fan of that one).
These are a bit aggressive I know. Still working on getting my China list together. What are your favorites there?
jamba/bobisgreen,
Don’t misunderstand me. I am NOT disagreeing with Jim about putting together a list of potential stocks now. But I would also say the list doesn’t need to be completed by tomorrow either.
Jim,
I find myself, once again, to be in complete agreement with you. The level of pessimism out there is exactly what I like to see.
At this rate, when next quarter’s numbers meet forecasts, there will be a jump in stock prices (as opposed to previous quarters, where stocks sold off on good news). If the numbers exceed forecast, the jump could be very large and many stocks could quickly be posting new highs for 2010.
For those with lingering doubts: just ask yourself, if you were a CEO issuing an earnings forecast for the rest of the year, where would you set the bar? Do you really think you’d set it so high that you might not be able to jump over it?
During earning season, then, I think we will see stocks resume the leadership position among investment vehicles.
I rebalanced my porfolio yesterday to increase my exposure to Emerging Asia and Latin America. I also reduced my bond exposure and increased my stock exposure.
Ed,
Amen to “research time”. Blood-shot eyes, midnight oil…Amen to “well worth it”.
This will make you stay up: Look for who competes with the “big boys” in areas of say, tech…Who competes with the likes of Cisco?…who is a budding flower? good financials…yada yada. Apply that to China…whoever. NOW’s the time…when most everyone has been beaten down..do your research…Jim’s right! Love pessimisism…fear…get ready to pounce! Sorry, Ed…just had a bullish episode!
Technically it still looks bad. The Dow still has a long way to get back over the 200d EMA before I start celebrating. I also own SRS.
Ed,
I know you are bearish right now but putting together a list of stocks for purchase at better prices down the road. In particular what are your thoughts on Canadian based stocks. I am looking at AGU,strong balance sheet and diverse product line within their sector,TCK for the same reason, CNI for rebound in economies and FRG for a play down the road.
fyi, in India, out of a population of 1,168 million, males outnumber females by over 36 million. This is similar to China and I agree it’s minuscule compared to the overall population of both countries.
For what it’s worth, I also own a fair amount of SRS. I call it my armeggedon insurance…..
GlassWizard,
I personally don’t see the point. First off if you have 1 billion people an outnumbering of 39 million is tiny, and it is stupid of the column writer to compare them to Los Angeles.
Second most of outnumber is because of the policy of one child per couple, and there is no saying what the current policies will reflect for the future, but personally I think that limiting the population to resources is a good thing, and there is nothing unsustainable about it for at least another 50 years. And I certainly can’t say the same about all the other countries pushing for growth in population.
I’m sticking with Brazil. I saw this fact sheet on China here:
http://www.businessinsider.com/15-more-mindblowing-facts-about-china-economy-2010-4#chinese-men-outnumber-women-by-39-million-over-ten-times-the-population-of-los-angeles-thanks-to-a-distorted-male-vs-female-birth-ratio-1
Any place with a gender discrepancy of 39 million men over women is destined to do some pretty stupid s**t, regardless of how much pork they have to eat. Short China. It’s not sustainable.
shavdog ,
I’m no preferred stock/bond expert but the story on the L series is listed on Wells Fargo web site.
https://www.wellsfargo.com/downloads/pdf/invest_relations/overview/WFCPrL.pdf
The important part is: ”
The Series L Preferred Stock is not redeemable by us at any time. On or after March 15, 2013, if the closing price of our common stock exceeds 130% of the conversion price for 20 trading days during any consecutive 30 trading day period, including the last day of such period, we may, at our option, cause some or all of the then outstanding Series L Preferred Stock to be automatically converted into our common stock at the then prevailing conversion rate.
Optionally convertible – currently to 6.3814 common shares”
So if I read that right, WFC would have to trade at over $200 a share for them to convert it into stock. I could handle that 🙂
marr.bo,
That’s why I like penny stocks when the market is more bullish. It’s a lot easier to find “undiscovereds” there. Of course, penny stocks require a LOT more research time. But the payoff is well worth it.
How does one find “undiscovereds”. Seems like the very fact that main street investors are able to find out about them make them “discovereds”. Goes back to efficient market theory: the information you are able to find on the net is already factored into the stock price. This reminds me of an old quote, “If it was easy, everyone would do it.”
Ed, Jim:
China is looking good…I’m looking for the “undiscovereds” by mainstream investors…as long as Chinese govt. behaves…cooperates a little..the world is your investing oyster! at least for a while.
We needed a little break in getting the s&p out of the ditch…momentarily.
Speaking of pessimism, if you’re pessimistic about the real estate market, add SRS to your buy list.
Do NOT buy DRV! Historically, SRS, a double short, has been better over the long term than the triple short DRV. DRV is broken.
Disclaimer: Yes, I bought some SRS today.
Just as markets go up because they’re going up, they go down because they’re going down. The smart money doesn’t care…they’ll take it (to the bank) either way.
I have been buying! I have been loading up on high quality stocks that pay a dividend above 3.5%. They may go lower, but I tend to be more patient with them when I am getting paid a dividend while I wait. I am about 2/3 equities and 1/3 cash.
When I re-enetered the market in April 2009, I thought the U.S. stocks were, generally speaking, overpriced. When I discovered the Chinese stocks, I was practically salivating from the undiscovered value there.
In June 2010, generally speaking, at least the U.S. stocks are starting to look reasonably priced, but China still looks like it has the better bargains.
You need a picture with the stock market going down, down, down. 🙂