Kaminsky's Call: Position Yourself as A Contrarian
Morgan Stanley, Vice Chairman
The K-Call is back from vacation. As many on Wall Street take time off this month, consensus opinions have been making the rounds as much commentary has bordered on complaint. Yes, it's the time of year that the market is "dead," but polling the various players in investment circles, these are indeed drag days even for August.
But before you know it, the fourth quarter will be upon us. Many will bank on overriding beliefs to strategize for the end of the year. My "Call-to-Action"? Be contrarian. Just because these theories are being spread does not mean that they are true and bound to happen.
Let's look at three:
- 1. There is a Treasury and Bond Market Bubble
The fact that so many people think that this is true tells me that it's not. Is it a coincidence that many who expound this "truth" are the ones who manage and trade equities? The rationalization by these people losing so many assets into bond funds—does this create a legitimate bubble?
We have pointed out numerous times on The Strategy Session that the movement of price and yield is concurrent with the idea that we have had a secular change, with people less concerned about return on capital, and more focused on investment caution.
Think of the tech bubble ten years ago. Was there a safety component driving it? How about the housing bubble?
Of course not. Thus, I don't buy this thesis at all. Yet, the vast majority claims it to be true.
- 2. Republican Victory in November Will Move the Market Higher
This one worries me. It's too predictable, too easy of a correlation. And usually, when you see so many depending on an event to save the equity markets, the outcome is disappointing.
Sure Republican victories in congressional elections will signal sympathy to the white-collars. Clichés become clichés for a reason. But promise of tax cuts is not enough to make me a believer that the S&P can sustain a rally out of any November returns. Remember contrarian thinking here.
- 3. As the Year Closes, Global Macro Hedge Funds Will Not Slip Like Smaller Funds
I really question the command of these larger funds (those with over $5 billion in assets). As my colleague, Kate Kelly, has reported, institutional money has continued to pour into these mega funds and for what reason? Does a "Join the Herd" mentality really work when you consider that the same large positions are being taken left and right?
Maybe the "I know where my money's going" philosophy is driving capital into these big funds more than into smaller shops, but what happens if a name that all the behemoths own falls?
Anytime a widely-held name takes a dip, aftershocks rumble. But what about when "widely-held" takes on a new meaning with these mega funds fully invested in the name?
The drop could be disastrous. We are starting to see overlapped positions that remind me of the names everyone owned during the tech boom (and collapse). Look for a negative chain-reaction to compensate for losses should a big position name falter later this year.
I don't mean to be a drag on my first day back, but it is very possible that everything you've been hearing this month about the future has been wrong. Position yourself now as a contrarian so when the all-important fourth quarter rolls around, you're not stuck in everyone else's misguided summer camp.
The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.
Gary Kaminsky does not hold any equity positions.
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