I stumbled across this quote from USA Today dated Nov. 5th, 2019:

Mike Piershale, president of Piershale Financial Group in Barrington, Illinois, manages portfolios for retirees and pre-retirees. Most of his clients have 70% toward stocks and 30% to bonds. Since Piershale expects the stock market to keep strengthening through 2019 and into next year, he’s advising clients to remain in their current allocations.

“We’re in the longest bull market in history and we’re overdue for a recession, but good economies don’t die of old age,” Piershale said. “At some point, this (bull market) is going to be over, but there are positive signs that this could last through 2020 at least.”

This still seems to be the consensus.  However in my long career I’ve never made much alpha (better than market performance) betting on the consensus.  In countless TV interviews and articles I have espoused the benefits of ‘doing the opposite.’

Of course there’s a reason it has worked for those that have done well by this philosophy – Warren Buffet, David Dreman, Jim Rogers and George Costanza.  Optimism (or extreme pessimism) get reflected in market valuations to the point that everyone who wants to buy in has already bought in (or in a bear market the sellers have all sold).

A sudden change in sentiment sends a stampede in the opposite direction.  Getting ahead of the stampede pays enormous dividends.  That’s why early in my own professional development I spent a great deal of time looking for ‘surprises.’  It was much easier before the advent of the Internet – in order to learn about quarterly earnings I had to call the company and ask for a quarterly report (physical copy) to be mailed to me.

Portfolio managers (and brave investment analysts) get no credit for making an early bond call – usually they’re ridiculed by peers and media at the time.  They only get satisfaction when down the road the resulting performance from the call is evident.

I borrowed and then bastardized a couple of charts from a brilliant strategist friend of mine to illustrate what is about to ‘go wrong’ with the stock market, and bodes well for the bond market.

Estimates for stock market earnings are biased by recent strong results, when too many good things were on the go – strong consumer demand, tax relief for businesses and so forth.  As mentioned in another posting of mine – I expect (based on deteriorating global economic indicators and the yield curve inversion) analysts will soon (weeks, months) have to revise down their earnings forecasts.  This always takes awhile – especially since they’ve only recently finished revising them up to catch up to the strong latter half of 2019.

With the S&P 500 dividend yield now down to levels near the 10 year Treasury Bond rate, something is bound to be the sort of ‘surprise’ that creates opportunities.

Valuations plummet or Interest rates fall even lower.

There’s not much room for interest rates to fall (the real interest rate is already negative) but there’s lots of room for valuations to decline – especially for giant tech names that don’t generate profits.  So rather than tilt your portfolio more towards stocks, perhaps you should ‘do the opposite.’  Sell stocks and buy bonds or if really a contrarian go to cash.