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Financial Post: I Haven't Been This Excited About Going Against the Herd in Years

April 15, 2021
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Article by David Rosenberg in Financial Post

I was being interviewed on CNBC last week when I was told that my views were diametrically opposed to the consensus and how the markets are positioned. To which I exclaimed that it’s been many years since I was this excited about going against the herd. I had just enough airtime to work in Bob Farrell’s Rule No. 9: “When all the experts and forecasts agree, something else is going to happen.”

Of course, this was all about the debate over runaway growth, inflation and the call on the United States Federal Reserve and the Treasury market.

I didn’t take the bait on the stock market, as the bubble just gets bigger and bigger, with the cyclically adjusted price-to-earnings (CAPE) ratio now pressing against 37x, only surpassed historically by the late 1990s’ tech frenzy.

Yes, I am not positioned the way the dominant “Roaring Twenties” crowd is, that much is for sure. But I have been here before. When I turned bearish on tech at the height of the dotcom bubble back in 2000, my partners at the time thought I was nuts.

But it was during the mania in the mid-2000s that my resolve was truly tested. All I had to do was sift through the data and the charts to know we had a U.S. housing bubble of epic proportions on our hands.

Leverage, speculation, valuation, sentiment and public participation all fit the classic definition of a bubble, yet — believe it or not — it reached a stage where I had peeved off so many people by not being part of the bullish consensus that I was forbidden from using the “B” word in my published research (we settled for “mania” instead).

Look, nobody is right all the time, and nobody is wrong all the time. More often than not, it really comes down more to timing, and I am historically early to a fault. But experience goes a long way in this business and so it is important to identify bubbles — we have two now, in residential real estate and equities — and then understand that excesses will always go further than you think (where we are now) and that no bubble ever corrected by going sideways.

It is fanciful to believe that we will come out of the first global pandemic in more than a century into a world of newfound sustainable inflation. Or that a massive surge in public-sector deficits and debts, producing little more than a short-term sugar high

But once this so-called “pent up” demand is filled in the four per cent of GDP known as the COVID-19-affected “consumer services” sector, and once these short-term stimulus checks run out, the economic emperor becomes disrobed, as was the case in last year’s fourth quarter. By July-August, the markets, both stocks and bonds, will start to see what I already see around the bend. Why? Because “something else is going to happen.”

Sometimes these bubbles just end up bursting under the weight of their own overvalued excess. As Bob Farrell would say: “The markets make the news; the news doesn’t make the markets.”

The market consensus is so overwhelmingly one-sided that I don’t find it one bit difficult to bet in the other direction.

I’m having the same gut check I had in 2000, 2002 and 2007. The pushback is incredible, but it is actually increasing the .....

To read this article in Financial Post in its entirety, click here.

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