On March 26, 2005 I sent the following memo to a few of my market friends:
March 26, 2005
I've been going through the recent additions to my market scrapbook of newspaper and magazine clippings. I have kept this scrapbook for many years and it is a great help in identifying widely held beliefs about investment opoportunities. My basic rule of thumb is that any view of the future that is widely held is probably wrong and this is especially true of pessimistic beliefs.
With this in mind here is a list of what I think are today's widely held market beliefs.
1. The Fed will continue to tighten and this means that longer maturity bonds are bad investments at the present time.
2. Stocks are overpriced based on standard valuation yardsticks. Earnings growth is slowing down and the Fed is tightening. The dollar will stay weak and oil is going higher. For these reasons the US stock market is not a good investment.
3. Real estate prices are way out of line with values and income and so real estate is a bad investment now.
4. The US dollar will stay weak because of large, continuing trade and budget deficits. so dollar denominated assets are not good investments.
5. Inflation is headed higher led by oil prices which are headed for $60 to $100. Even worse, oil production world-wide should peak in 2006 (New York Times, op-ed, March 25, 2005).
6. In general "there is too much capital in the world. And that means that those who own capital - investors - are in for some unhappy times". (Floyd Norris, New York Times business columnist, March 25, 2005).
YIKES !!!!! THERE ARE JUST NO GOOD INVESTMENT OPPORTUNITIES AT THE PRESENT TIME!
You may safely conclude that I think that the views expressed by items 1 - 6 above will be contradicted by market movements over the the next year.