He drives a school bus through the serpentine splendour of nouveau riche agrarian GTA. This is where the people live who would enjoy polo and The Hunt. If they only had a horse. Instead they have BMW sport utes and John Deere riding lawn tractors. Neither come with saddles.
Andre makes ten grand a year driving the rich kids to school, and he reads this blog. “I like being kinda out there,” he says of his lifestyle. “Besides, if I ever get in serious financial trouble, I can always ransom one of the screamers.”
Anyway, the guy’s a doomer. His entire net worth, about $60,000, is in little bars of silver piled in the basement of his rented house. Last September, when the metalheads were swarming this site telling us America was about to default on its debt, Europe was trash and 2008 was coming back, he swallowed the Kool-Aid. The silver cost him $48 an ounce, and today’s worth $33. That’s a loss of 31%.
“Maybe that wasn’t such a genius move,” he offers. And I tell him it was right up there with kidnapping.
It’s hard to discern how many people the gold nuts, apocalypse newsletter-floggers and bear ETF salesguys have scammed. Judging from all the doomer web sites and the number of people now shorting the market (and getting creamed, in the bad way) it’s in the millions. Too bad. Especially for guys like Andre, who can ill afford to have a pile of useless metal in the furnace room.
In fact, a plunge in volume on stock markets, even as they plod higher, shows just how badly informed retail investors are. Freaked out by meaningless and negative headlines (“S&P downgrades US debt!,” “Greek fixed income yields soar!”) billions of dollars have been shunted off into no-yield bonds, GICs, over-priced houses or the orange guy’s shorts.
Once again, human emotion is the greatest obstacle to success. It’s easier to scare the crap out of people than inform them. In fact, fear is the greatest single motivator. Not lust, hunger or greed. We’re most driven to take action when we’re scared.
I mention this in case you feel like being contrarian, which is almost always a profitable thing. There are reasons the Nasdaq is at the best level since 2000, or the Dow may this year establish a new all-time high. It’s all the more remarkable this is happening in a period of low volatility (the VIX has practically gone to sleep), when there are bidding wars for insanely-price real estate, and when most people put “no risk” as their main investing goal.
In fact, the flood of comments on this pathetic site every time I allude to the growing economic recovery in the US and stabilization of Europe, is an indicator all on its own. If most people actually believe America is a failed financial empire, that hyper-inflation could make paper money worthless or a global conspiracy has the fix on markets, then we have an unbridled opportunity. Cuz they’re nuts.
During the GFC and again amidst last fall’s meltdown I told you not to bet against America. Since then, equity markets have rebounded 30%, precious metals have pooped and (most importantly) jobs are coming back. Over 200,000 last month in the US and more than 240,000 the month before. This has breathed new life into consumer confidence, and been reflected in retail sales – up in January the most in five months. Want a little proof? GM was bankrupt three years ago. Last year it made profit of $7.6 billion.
Most importantly, more evidence the US housing market may be forming a bottom. Pending sales, as I told you a few weeks ago, have shot higher. Now confidence follows. A survey released Tuesday shows 60% of people have a positive view of the housing market and 70% expect property values to shoot higher over the next two years. Last year 52% thought real estate was a deal – with cheap prices and rock-bottom mortgage rates – and now the number’s jumped to 63%.
Of course, the US budget deficit is immense. Unemployment is still rampant. Too many people on food stamps. And at least three certifiable whackjobs are running for president. It’ll take years yet for the country we knew in 2004 to come back. But the fact it will should now be obvious. When corporate profits are at record levels and Apple has enough cash to buy Greece, those who tell you we’re on the verge of collapse have probably got something to sell. Like their precious metals fund. Or a subscription to Modern Suicide.
Will markets swoon again? You bet. But 2008 ain’t coming back.
So here’s the crayons version. Houses in Canada are absurdly overvalued and risky. Financial assets are largely unloved and undervalued. Seventy per cent homeownership should terrify you, given the financial track record of your friends. And the best defence in a stormy world is liquidity.
But you can ignore me. Most will. Perfect.