Investment Contrarians

investor sentiment


Avoid Regret: Accumulate Gold Bullion Now

By for Investment Contrarians | Dec 3, 2013

Gold Bullion NowThere are many ways to try to get a handle on where the market is currently trading and what’s likely to come. For me, investor sentiment is extremely important, but not for the reasons many would think.

All markets have various factors pushing them. As a contrarian investor, you want to look at taking profits during periods when investor sentiment has become extremely bullish, and accumulate positions as investor sentiment gets too pessimistic.

Why are these turning points?

If everyone is bullish, then there is little new money left to pile into an investment. Conversely, when everyone is bearish and has sold their holdings, there’s very little selling pressure left, which creates a floor—at least over the short term.

Ultimately, the fundamentals of the market will come through, but the gyrations and oscillations are driven by investor sentiment.

Take gold bullion, for example. I recently read a very interesting article stating that currently, 18 out of 31 Wall Street analysts expect gold bullion to fall this week, continuing their negative investor sentiment outlook on the precious metal. As of the end of October, hedge funds held the lowest level of long positions in gold bullion since July 9. (Source: “Gold Bears Persist as Prices Near Year’s Low on Fed,” Bloomberg, November 29, 2013.)

Both the short-term prediction by analysts and the long-term forecast by hedge funds are expecting gold bullion to remain weak. It’s interesting to note that we are now getting a convergence in investor sentiment over a variety of timeframes. It’s also interesting that July was the last time investor sentiment was this low.

So what happened to … Read More


Is This Digital “Gold Bullion” Investment Worth the Risk?

By for Investment Contrarians | Nov 26, 2013

Investment Worth the RiskThere has been a lot of coverage over the phenomenon that is Bitcoin.

I’m sure many of you are asking yourselves, is this online currency for real? What does it really say about our financial system?

But for those who are unaware, Bitcoin is essentially an online currency that is completely decentralized. Simply put, it is the exact opposite of the U.S. dollar, which is managed by the Federal Reserve.

While the value of one Bitcoin started off being only a few U.S. dollars, over the past couple of months, investor sentiment has become euphoric and the price of a Bitcoin has gone hyperbolic, from approximately US$13.00 in January for one Bitcoin to US$100.00 in July, recently hitting a high of US$900.00 for one Bitcoin in the past few weeks.

Why is investor sentiment so bullish on this online currency?

The best way to think of Bitcoin is as an online version of gold bullion. This digital “gold bullion” has exploded in popularity around the world. In fact, some of the strongest investor sentiment in Bitcoins comes from China. Not only are the Chinese heavily buying physical gold bullion, but they’re now accumulating the digital version of gold bullion: Bitcoins.

Many find the appeal of a decentralized currency attractive in this day and age. With central banks pumping money around the world, owning a piece of something that can’t be controlled by a central bank is very attractive to many people.

However, the spectacular rise of interest in investor sentiment for the digital gold bullion is extremely speculative.

Actual gold bullion has been around for centuries. To place one’s faith … Read More


Chart Shows Investor Sentiment Out of Touch with Reality

By for Investment Contrarians | Nov 13, 2013

Investor Sentiment Out of TouchTo some people in the mainstream media, last week’s advance estimate on U.S. gross domestic product (GDP) growth was seen as a positive surprise.

According to the U.S. Department of Commerce, the advance estimate on U.S. GDP growth for the third quarter of 2013 was an annual rate of 2.8%. In the second quarter, real GDP growth was 2.5%. (Source: U.S. Department of Commerce, November 7, 2013.)

Reading just the headline, it would be easy to assume that GDP growth was accelerating on a solid footing. However, had they looked just a bit deeper, they’d find that the truth is the GDP growth estimate that was reported was actually much worse than the headline number.

The fundamental strength underpinning this increase in GDP growth was temporary, and it could lead to a much weaker fourth quarter. If investor sentiment were propelled higher due to this blip in GDP growth, it would be a mistake.

The big increase in GDP growth was due to a build-up of inventory, a reduction of imports, and an increase in spending by state and local governments.

What happened to consumer spending, which makes up three-quarters of our economy? Personal consumption increased by 1.5% in the third quarter versus an increase of 1.8% in the second quarter. People began to reduce their spending versus the first half of the year.

Inventory increased by $86.0 billion in the third quarter, versus a $56.6 billion increase in the second quarter and a $42.2 billion increase in the first quarter.

Just the increase in inventory alone added 0.83% to the GDP growth figure. If investor sentiment is increasing based … Read More


Stock Market Warning: Margin Debt Hits Record-High $401 Billion

By for Investment Contrarians | Nov 7, 2013

Stock Market WarningI had an interesting conversation the other day with a friend of mine who asked a very compelling question: with margin debt in the equities market hitting a new all-time high—$401 billion on the NYSE in September—is this a sign of a market top?

To find out what this really means, we have to dig a little deeper into how this can affect the equities market.

An increase in margin debt is really a story of investor sentiment. As the equities market moves up, this gives people more confidence and therefore increases investor sentiment. Many investors then borrow money to invest in the seemingly bullish market—this creates margin debt.

Now, this all sounds great on the way up, but in the end, the problem with higher levels of margin debt is twofold.

First, the very fact margin debt is increasing can be looked at from various angles. One is the obvious point of view that investor sentiment is becoming increasingly bullish on the equities market, so people are borrowing to get in on the action.

Another way to look at higher levels of margin debt is that while borrowing money to put into the equities market is bullish, as more money is chasing the same number of shares, at some point, if everyone is in the market, who’s left to buy?

Second, the real problem with high levels of margin debt is not on the way up, but when the equities market begins to turn. While investor sentiment can shift rapidly, the problem with investing on borrowed money is that it becomes far more painful on the way down.

This … Read More


Update: Global Gold Bullion Demand Still Rising, Supplies Running Dry

By for Investment Contrarians | Oct 21, 2013

Global Gold Bullion DemandIt is amazing how different investor sentiment can be around the globe regarding just one topic: gold bullion.

Most of you are quite aware that the price for gold bullion here in America has dropped significantly this year. One could come to the conclusion that investor sentiment has left the precious metal for good.

However, looking at investor sentiment for gold bullion on an international basis, the picture is very different.

Just recently, the premium for gold bullion in India hit a record $100.00 an ounce above London prices. The demand for gold is so high in India that the supply for physical gold is running out. (Source: “Gold Premiums Hit Record in India,” Reuters, October 15, 2013.)

As most of you are probably aware, the Indian government has tried to clamp down on imports of gold bullion to try and stem the outflow of their currency, which is causing the rupee to drop significantly.

This is a great example of not just investor sentiment on a local level, but of global investor sentiment as well, which gives us a better picture of the true fundamental situation. Gold bullion has fallen in price here in America; that’s because investor sentiment looking at the precious metal from the point of view of the U.S. dollar.

People in other nations are not experiencing the same type of price drop in gold bullion. In fact, in India, the rupee has dropped so far that gold prices are still near their record highs.

Will investor sentiment shift in favor of gold bullion once again versus the U.S. dollar?

Obviously, no one can predict the … Read More