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Minyan Mailbag: Appetite For Risk


...always question conventional wisdom and ask why it is so.



As a Minyan and Buzz reader (enthusiast), I have noticed that you always seem quick to point out the "Bear" view of the market and the indicators that support this view. I was just wondering (as I try to learn), what would make you positive on the market?


Minyan Jeff


It is not that I am "negative" or "positive." I know full well that markets are driven (especially in the extremes) primarily by sentiment: the appetite for risk by investors. Saying I am positive or negative based on how investors "feel" is not the correct connotation.

First of all I am contrarian by nature. This makes me always question conventional wisdom and ask why it is so. Much of my commentary is merely meant to show the "other side" of conventional wisdom, to make people "think" about what is happening. I have never said short stocks; I always talk about risk instead. By the way, most of conventional wisdom is carefully packaged by Wall Street; it is in Wall Street's best interest to get stock prices up. Currently (and for the future) that objective is congruent with the government's objective for the real economy is inextricably tied now to stock prices.

Combine this with the masses' lack of understanding as to what the macro situation (although they are finding out through lower income and higher debt) is implying and this is a very powerful combination.

Secondly, I am one of those who question the wisdom of the effect of money on the system. I understand the idea of lower currencies (loose money policy) causing higher stock prices in the short run (a few years), but I also understand why it occurs and that it is caused by credit expansion. In the long run this is a de-stabilizing effect, while all along looking like a stabilizing effect. High liquidity means higher stock prices in the short run, but in the long run it means higher debt levels and higher risk.

For example, as imbalances accrue in the world economy we believe that multi-national non-discretionary consumer companies with moderate debt (i.e. Proctor & Gamble (PG)) will do fine, but financial companies are very risky.

So while I cannot be short term negative, or advise when stock prices are likely to fall, I can advise on the levels of risk and the burden we are placing on future generations in this country.


Position in PG

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