Monday, March 19, 2012
A Comment on Current Market Sentiment
CNBC today Featured Nassim Taleb who said he has "no choice but to own stocks" to "preserve my financial situation." He is trying to hedge against hyperinflation. Funny, that this article comes out AFTER the markets have already risen 100% from their March 2009 lows. I will bet Mr. Taleb wasn't saying he has "no choice but to own stocks" after the market had fallen 58% from their October 2007 highs on March 6, 2009. But now that the market has risen substantially, he is bullish. Of course, March 2009 is exactly the time that everybody who is bullish now should have been bullish and "worried about hyperinflation", but instead they were worried about deflation and a depression. I agree with Mr. Taleb in his worry about the financial future and his support for Ron Paul, as he is one of the ONLY politicians that has the slightest understanding of what is really going on, however I believe Nassim is very wrong about his assessment of the financial assets to own. I see deflation is a much bigger threat than hyperinflation, but, naturally, hyperinflation is on everyone's minds now. By the time the market makes its final low for this bear market, everyone will see Deflation as the major threat. That of course will be the time to be worried about "hyperinflation", which may or may not occur. But that mindset will do investors much more good at the bottom than now, as financial assets will be severely undervalued by then, probably more undervalued than they were in 1932. Not to mention some famous bears have also capitulated as well. That includes Nouriel Roubini, Zero Hedge, and David Rosenberg. Many sentiment measures are at more extreme levels than the all-time high in 2007 yet the market is not at a new all-time high. With the U.S. Dollar set to commence a major bull market and deflation straight ahead, the sentiment picture now is the mirror opposite of March 2009, which makes the conditions ripe for a major top.