Coming to the End of a Long and Painful Bear Market
THIS is what a bear market bottom looks like! I'm not saying with 100% certainty that we've turned the corner. It is just that THIS is what a bottom looks like... and I'm talking from nearly half a century experience in all sorts of asset classes.
Introductory Comment, by Frank Suess
A few weeks ago, I had the opportunity and pleasure of having lunch with Chris Weber. Chris is a money manager and he has been sharing his insights with clients and readers since 1974(!). He still regularly writes and publishes The Weber Global Opportunities Report, a subscription-only newsletter. And, that newsletter is still going strong, which says a lot about the quality of Chris’ work.
With a focus on precious metals investing, the Weber Global Opportunities Report covers a variety of topics and I can certainly recommend it. However, here’s the wonderful news: Global Gold subscribers now get to enjoy some free sneak peeks. Chris, after our lunch, graciously offered that we could publish excerpts from his newsletter and share them with our subscribers.
So here you go. The following includes some interesting excerpts from a recent issue that I found particularly insightful. I hope you enjoy this contribution from Chris as much as I enjoy his newsletter. If you do, you should consider signing up for the real deal and go register at www.weberglobal.net.
This kind of atmosphere is what I live for. I love to follow trends and try to match my wits with the market. The tremendous degree of optimism at the tops, which are matched by equal degrees of pessimism at the bottoms.
Over the years, this has become more than just a hobby: it has been, overall, a profitable way of life.
When an asset class goes up and up, at some point people start to pile into it. The more expensive the asset becomes, the more they want it. At the top, they want it as badly as any addict wants his junk. But reverse the trend and have prices fall and fall, and at some point, the cheaper it becomes the less people want it. This continues until they no longer want it at all.
And this is where I believe we are now with the precious metals. Of course, I could be wrong about the exact timing. But I don't think I am wrong about the way this market is behaving. This is what a turning point looks like.
Recently, a client told me this: "I seem to have a knack for enlisting managers after they have done well for years only to have them regress to the mean as soon as I sign on."
This is a very important point. He's saying that his method is to choose managers who have done very well until he signs on. That's another way of saying that he normally buys at the top.
Now, I'm not saying for sure that this is the bottom we've all been waiting for. But what I will say is that this is the atmosphere that accompanies most every change in major trend from bear to bull.
What happens is the pessimism grows so thick you can cut it with a knife. People finally sell who had ridden out the bear market, or correction, or just general down years. What you see is a cluster of pessimistic sales which directly precedes the bottom or comes almost directly along with it.
So, I want to be clear on this: I'm not betting everything I have that the PM universe is finally on the way up. I'm only saying that what we are seeing is what we normally see in any asset class which has been bashed for so many years, with so many false dawns working together to quash one wave of hope after the other, until there is nothing left except sheer pessimism.
Good things come to those who wait
I've spent many years looking at the differences between successful investors and those who haven't been so fortunate. One thing stands out across all asset classes and all decades. The successful ones can be patient. They can wait a long time without the panic selling you see most often with smaller investors.
Indeed, if you see small investors now getting out of the "PM universe” the way I've been seeing it, this looks to be a clear sign that the bottom is near.
Meanwhile, we're looking at the general stock market and seeing a very different scenario. Stocks have been rising for nearly a decade now. And yet you still don't see a mass movement into stocks the way you saw last December about bitcoin. Back then, I listened as all sorts of novice investors told me how rich they were going to get in cyber currencies. My "inner alarm bells" went off.
I'm not perfect. One thing happened earlier this year that should have alerted me that the precious metals area was still weak and falling. When, back in April, I had that contest about giving the reader who correctly guessed when gold would go to $1,400, the overwhelming majority of guesses were for gold to get there very soon. Many picked a date in May or June...
I would say that most did. Some even chose April, that same month, or just days away.
Thus, there was tremendous optimism. I told myself that "normal investors" are pessimistic on gold, but that my readers were different: If they were optimistic, they may be right.
But it turned out that my readers are just as apt to be pile into or out of something at the wrong time as are any other group of people We're all human and the way gold was acting earlier this year --especially after being so weak for so long-- made it easy to think that gold was on its way up. What I should have done is to look at that great optimism and compare it to the great optimism about bitcoin on the part of many readers last December. I'm not saying that everyone was bullish on bitcoin at the top. But the percentage of people who answered my call for help in selling bitcoin at what turned out to be the peak was perhaps the largest percent of any set of reader responses I've ever seen.
Most were overwhelmingly bullish on bitcoin and the others. Some begged me not to sell. It wasn't just what they wrote, it was the way they wrote it. Reading letters the way I have for decades, the message came through loud and clear: the bubble had spread so wide as to take in many of my readers. It made me want to get out of bitcoin even more.
But when I held the contest, I myself was optimistic. I did not name a date, but if I had it would have been right in line with most of the readers: that gold would touch $1,400 sooner rather than later.
I don't know what I would answer that same question today. Right now, $1,400 gold seems a long way off.
There is a lot to be learned from this contest. It turned out to be a contrary indicator: most of us were too optimistic, and I include myself in that group. Maybe we're just too tired of waiting. And yet we're smart enough to know that "good things happen to those who wait". We're smart enough to know this, but we don't always act smart.
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