Every single day in the markets somebody attempts to make a contrarian statement in one form or another in order to exercise their right to intellectual superiority. Of course, in the markets, more than perhaps anywhere else, there is a definite reward for contrarian prowess. After all, the markets don't simply hand out money with no effort. Current market conditions aside, which would have had your average 12 year olds favorite online resources outperforming most any fund manager, contrarianism is the foundation of every story you have ever heard about investors harpooning the legendary whale in what turns out to be the trade of a lifetime.
What happens when contrarianism fails, however? In other words, what happens when what is obvious is obviously right and it ends up rewarding all parties involved?
I have argued in the past that the dynamic involved in rewarding all market participants in a heavily imbalanced consensus opinion is essentially the equivalent of the markets internal functioning mechanism breaking. Once broken, it allows for trends that are both powerful and unreasonable to a significant degree.
Perhaps the one trade in the current market that is obvious in nearly everyone's eye is going long interest rates/short long dated government bonds. Everyone knows that inflation exists. Everyone knows that fiscal stimulus has massive inflationary ramifications. Everyone sees that yields are breaking out.
The contrarian crowd among us has been loud in proclaiming that they know how this story ends, expecting some type of expungement of short exposure before the trend resumes.
But it's not happening. The bond market can barely muster the energy for a moderate consolidation before the trend resumes back down. All the meanwhile, all of Wall Street is short bonds/long rates in one way or another.
The internal mechanism of the markets that is built on fooling the greatest number of individuals is in the process of being overwhelmed by the fundamental data. The internal market mechanism that is underlying efficient market pricing dynamics is crumbling.
What are the ramifications? A meteoric rise in rates that neglects to take into account any semblance of contrarian feelings, intellectual gesticulation or consensus data. A move to 4% on the 10 year is within reach.
And what is obvious becomes obviously right.
_______________________________________________________________________________
From time to time, I email individual company research, commentary and excerpts from my monthly investor letter to those who are interested. If you would like to receive future emails, please write me at mail@T11Capital.com
Disclaimer
This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice.
This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website.
T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from T11 Capital Management LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing.
Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding capital markets or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither our information providers nor we shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in, the transmission thereof to the user. With respect to information regarding financial performance, nothing on this website should be interpreted as a statement or implication that past results are an indication of future performance.
