The Contrarian Market View

Could Stocks Rally to New Heights? Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] The Contrarian Market View - If the crowd is usually wrong and the crowd is currently bearish, does that mean it’s time to be bullish?… - Three potential sources of a huge rally… - The implausible and the impossible are increasingly likely… Recommended Link [URGENT: Drug Stock Could End Arthritis?]( [Read more here...]( Will This Company’s Breakthrough Give New Hope To Millions? If You Or Somebody You Know Suffers From Arthritis, Pay Close Attention. [Click Here For More Details]( San Francisco, California July 9, 2022 Editor’s note: Here at The Daily Reckoning, we tend toward the contrarian view. We avoid crowds. But now that everyone is bearish (guilty), is it time to actually turn bullish? Today, Charles Hugh Smith shows you why it’s a fair question to ask. [Charles Hugh Smith]Dear Reader, The Daily Reckoning is a contrarian newsletter. And I’m a contrarian. As a contrarian, I'm always squinting at the consensus and wondering if it is really that easy to be right. Right now just about everyone is bearish. And since everyone is bearish for reasons we all know — global recession, a hot war, energy scarcities and stagflation — I'm thinking, you know what would be really irritating? A bat-dung crazy rally to new highs in U.S. equities. How many people expect that to happen anytime soon? Such a rally would be irritating, indeed, because few are positioned for this eventuality due to odds of it happening appearing to be near-zero. What's odds-on is all the assets that bubbled up in the Everything Bubble sagging back to pre-bubble levels or lower as global growth craters and stagflation stymies the easy fixes of money printing and fiscal stimulus. And as I've noted in the past, bubbles typically manifest a symmetry in their ascent and decline. All the gains are eventually reversed, and if the system is destabilized by the bubble bust, then prices drop far below previous lows. How could stocks soar in such confounding, catastrophic circumstances? It’s All About the Herd It doesn't seem remotely possible, but when the herd starts running, rationality is not high on its list. When the herd is spooked and panics, rationality is not exactly the order of the day. The herd might thunder off a cliff absolutely convinced of the rightness of the stampede. Alternatively, rationalists stare with growing annoyance at a rally that makes no sense, and then with great reluctance are forced to join the herd in its irrational euphoria lest the rationalist fail to match the returns of the herd and suffer banishment to financial Siberia. What could cause such an irritating, bat-dung crazy rally? I see three potential sources of bat-dung craziness… Recommended Link [“The Mainstream Media Is Lying To You!”]( The media would have you believe that the worst of the supply chain issues are over. But the opposite is true… Behind the scenes, things are getting much, much worse. Bob Biesterfeld, CEO of one of the biggest logistics firms in the world, warns “the pressures on global supply chains have not eased, and we don’t expect them to any time soon.” This is going to impact every American’s life in a potentially major way… And I’m urging everyone I can to prepare now. See the #1 move to make before this problem gets any worse... [Click Here Now]( The Smart Money 1. Market contrariness. As Jesse Livermore observed, the market tends to take along the fewest possible punters in big moves. Some will say sentiment is poor but positioning is still bullish, so sentiment doesn't matter. Perhaps. But a global recession is generally bad news for stocks, ditto hot wars, energy scarcities and stagflation (inflation in essentials and stagnant growth in employment, GDP, etc.). What's the most punishing move for punters and pros alike — a crash or an irrational rally? I tend to think it's not a crash, as too many people expect that now and punters who HODLed or bought the dip have been ill-treated by this year's erratic decline. The smart money sold early and heavily, rotated out of tech into commodities, but alas, that hot trade is blowing up too as the speculative positioning that pushed commodities to the moon is evaporating like mist in high-noon Death Valley. There are numerous powerful reasons to be in cash and remain wary of bear-market rallies. Given that backdrop, the most punishing move would be higher, tempting punters to short the bear-market rally every step higher and then forcing them to cover with face-ripping losses. Looking on the Sunny Side 2. Things aren't as bad as everything now expects. The consensus is the economy is going over the waterfall and the only sound we'll hear above the roar is the screams of punters who went long. But just suppose the blowtorch of inflation cools, employment holds up and the consumer ignores all the prognosticators of doom. Weirdly, consumers have deleveraged during the pandemic and the debt-to-income ratio isn't that bad. Corporations that overshot staffing are slashing headcount by attrition and hiring freezes, along with layoffs. But lots of jobs are still going begging. Corporate profits will take a hit but as commodity inflation cools and their super costly headcount drops, profits will look better a quarter out, and the market being what it is — a bizarre combination of irrationality, price discovery and forward-looking crystal ball gazing — the hope for fatter profits a quarter or two out could spark a frenzy. Recommended Link [Hey, It’s Jim Rickards Here]( I need your attention immediately. My big announcement comes down on Tuesday at midnight. If you haven’t already, you need to see it. Trust me, you do not want to miss out on what’s coming. [Click Here ASAP]( The World Flocks Into the Dollar 3. Core and periphery. We tend to forget that we're all currency speculators, regardless of the asset we're holding, be it cash, commodities, bonds, stocks, cryptos or real estate. Everything is arbitraged against the super liquid currencies, an exclusive club of the yen, euro and U.S. dollar. (The Chinese RMB, being pegged by the Chinese government to the USD, is a derivative of the USD.) Yes, the USD may sag but the bottom line is the USD rising makes everything cheaper for those holding U.S. dollars and much more expensive for everyone holding other currencies or assets in other currencies. Capital goes where it's treated well and U.S. markets are 1) a way to capture the gains of the U.S. dollar, 2) liquid and 3) relatively transparent compared to other markets. A couple of trillion seeking safe haven here, a couple trillion seeking safe haven there and pretty soon that influx of capital starts pushing U.S. markets higher. Note that everyone who sold assets priced in yen in January and moved their stash into USD cash just made 20% in six months. That's a pretty nice return. Capital moves from the periphery to the core when things start wobbling. The Implausible and Impossible Are Increasingly Likely It would be very irritating to have a rally suck in all the bears salivating for a crash from a bear-market rally peak and then decimate the shorts with a rally that soars rather than collapses to new lows. The rally would be even more irritating if it left all the smart money on the sidelines because a rally simply doesn't make sense. With great weeping and gnashing of teeth, the smart money is then forced to chase the rally higher. Yes, this is implausible, impossible, etc. That's why it's increasingly likely. Is it really that easy to be right? As a general rule, no. Regards, Charles Hugh Smith for The Daily Reckoning Editor’s note: This topic is a bit out of our wheelhouse, but our colleague really wants to clue you in about a [major market development…]( It involves a tiny $87 million company that could be on the verge of solving [one of the biggest health problems in America today.]( Its stock trades for about $2 right now. But when it releases a [major announcement as soon as this coming Monday, July 11]( this stock could absolutely go ballistic. How high could it potentially go? Well, [click here for the shocking answer.]( But you need to get in before the news breaks. Because once it does, it’ll be too late. You will have missed the [massive spike]( our colleague expects. To get all of the critical details, just [click here now.]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Charles Hugh Smith][Charles Hugh Smith]( is an American writer and blogger, and serves as the chief writer for the blog "Of Two Minds". Started in 2005, this site has been listed No. 7 in CNBC's top alternative financial sites, and his commentary is featured on a number of sites including Zerohedge.com, The American Conservative, and Peak Prosperity. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. 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