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The Basin Harbor Club in Vermont is home to a lot of things . . .
Picturesque views of Lake Champlain. A state-of-the-art golf course. About half the weddings I’ve attended in the eight years since I moved to Vermont.
And for 52 straight years, the Contrary Opinion Forum.
Founded by contrarian investor Jim Fraser more than half a century ago, the Contrary Opinion Forum is one of the longest-running investment conferences in the country. It features the world’s most prominent contrarian investors presenting their latest ideas to a captive audience comprised of investors looking to make money by zigging when much of Wall Street zags.
“Buy what everyone hates, sell what everyone loves,” is how first presenter Walter Zimmermann explained the conference’s collective mentality.
“Buying bad news,” is how we sometimes refer to it at Wyatt Investment Research. It’s how we captured a 550% return in Netflix (NASDAQ: NFLX) in our Million Dollar Portfolio. We invested in the company, then and now the dominant player in online video, in December 2011 at its nadir. The stock had been beaten down to below $70 by a series of embarrassing public missteps by CEO Reed Hastings.
Every October in Vermont, contrarian investors present their ideas for the next Netflix.
This year I’m personally attending the two-day conference. It is, after all, 10 minutes from my house.
With one day still to go, here are some of the highlights from what I’ve heard so far.
Contrarian Investing Analysis: Walter Zimmermann (United-ICAP)
Zimmermann is decidedly the pessimist of the conference thus far.
There’s not much the 30-year Wall Street trading veteran likes these days.
He’s bearish on gold, and thinks the yellow metal could fall to as far as $600 an ounce. Copper is in a similar downward spiral. He thinks crude oil prices will continue to decline. The yen and the euro won’t recover anytime soon.
Most of all, U.S. stocks are in a bubble. And there are plenty of warning signals that the bubble is about to burst, he says.
Zimmermann notes some of the disturbing trends. Bullish sentiment today has exceeded its pre-recession peaks. Subprime auto loans are both at all-time highs. The Cyclically-Adjusted Price-Earnings ratio developed by Robert Shiller, a.k.a. the Shiller CAPE ratio, is above 25 for just the fourth time in history. The others were in 1929, 1999 and 2007.
Worst of all, in Zimmermann’s mind: corporations have spent a trillion dollars on stock buybacks to satisfy overbearing institutional investors rather than devoting that money to growing the business.
“The whole thing is geared toward shareholder returns,” Zimmermann lamented.
Amid all of that muck, there’s one area of the global economy on which Zimmermann is extremely bullish: the U.S. dollar. As oil prices, the euro and the yen all fall, the dollar is gaining in purchasing power. Zimmermann especially likes short-term Treasury bills as a way to play the rising dollar.
At the Contrary Opinion Forum, Zimmermann wasn’t alone in his love of the dollar…
Contrarian Investing Analysis: Eoin Treacy (Fullertreacymoney.com)
The first of two Irish ex-pats to speak on Thursday (an eclectic mix, these contrarians), Eoin Treacy took the opposite view of Zimmermann. He called the current market a “secular bull market,” one that won’t be easily broken.
Treacy predicted that he could be presenting at a future Contrary Opinion Forum and the S&P 500 will have reached 10,000.
“The question is,” Treacy said, pausing for dramatic effect, “will it go down to 1,600 first.”
Treacy acknowledged that a short-term pullback is likely, especially as Fed tapering comes to a screeching halt. With the Russell 2000 dropping below 1,100, Treacy said that other stocks could soon follow suit as small caps start to sputter.
Though he remains super-bullish on U.S. stocks in the long term, the short-term prospects for other markets are much more promising. In the emerging markets, the sunnier outlook comes primarily from improved governance.
India is one example. The recent election of Narendra Modi as prime minister has already done immediate wonders for the rupee and the country’s stock market. Corruption has plagued India’s government for decades. Modi’s anti-corruption platform helped him win election in a landslide.
“I think India’s market could double within the next few years,” Treacy said.
Brazil could experience a similar turnaround if challenger Marina Silva unseats incumbent president Dilma Rousseff in the Oct. 15 election. Should Silva win on her anti-corruption campaign, Brazil’s stock market could take off in the same way India’s has.
And like Zimmermann, Treacy is bullish on the U.S. dollar.
Contrarian Investing Analysis: Peter Van Dessel (Abbington Investment Group)
Van Dessel, a fellow Irishman and 27-year alternative investor, has plenty of faith in his native country.
“Irish confidence is back,” Van Dessel insisted.
The numbers support Van Dessel’s assertion. The turnaround in Irish sentiment led to a 7.7% uptick in GDP in the second quarter, by far the largest jump in years. Unemployment continues to decline, now down to a “mere” 11.2%, the lowest rate since April 2009.
Because of that growth, Van Dessel recommends investing in the recovering European debt crisis casualty. He’s particularly bullish on the Bank of Ireland (NYSE: IRE), a stock he says could double or triple in the coming years.
“It basically has a monopoly” on the Irish banking system, Van Dessel explained.
Ireland isn’t the only European nation on which Van Dessel is bullish. In fact, he likes any large multinational European company that derives a significant portion of its earnings from U.S. clients. On average, American companies only derive 25% of their total earnings from non-domestic sources. In Europe, that number is 50%.
Van Dessel also likes Japan, whose stock market currently trades at just 1.2 times book value; China, with stocks that are similarly attractively priced and boast an average 5% yield; and, of course, the U.S. dollar.
Bottom Line
Buy Japan? Sell the yen? Sell the euro? Buy European multinationals?
There was no real consensus on Day One of the Contrary Opinion Forum. Except one.
Buy the dollar.
I’ll have more next week on Day Two of the contrarian conference.
Until then…
Good investing!
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