What I think and feel

I feel horrible that I'm the only guy in the world who thinks the U.S. economy isn't heading into recession. Everyone thinks I'm a naive fool. A wishful thinker. A permabull. Don't all the economic numbers released in the last couple weeks prove beyond any doubt that the economy is slowing sharply? How can I be so stupid?


I feel wonderful that I'm the only guy in the world who thinks the U.S. economy isn't heading into recession. In over a quarter century as an investment professional, I've never made any money except when I stood against the crowd.

The crowd is almost always wrong. If you want to make money in investing, when the crowd says "white" you should say "black." Right now the crowd is saying "recession." You should be saying "growth."

And even when the crowd turns out to be right, you won't lose much by betting the other way. Anytime the crowd all believes something, that belief gets reflected completely in stock and bond prices.


Look at what happened with bonds this morning when U.S. payroll job growth came out at a weaker-than-expected 92,000. Bonds should have soared on this supposed sign of economic weakness. Instead, they tanked. The crowd had priced bonds for so much bad news that this just wasn't enough.


Bonds are still priced for recession, with yields on long-term Treasurys lower than the yields of money-market funds. Stocks are priced for recession, too. The S&P 500's price/earnings multiple is as low today as it was on the day of the panic bottom on Oct. 9, 2002.


If there is a recession, can bond yields actually go much lower from here? Can P/E multiples get much lower? Maybe, but not much. So there's nothing to be gained by betting on recession, and therefore little to lose by betting against it.


But there's plenty to be gained by betting on growth. If the economy re-accelerates from here, earnings will grow and stock multiples will expand — stocks will blow out to new higher highs. And yields are going to rise at the same time, and fortunes will be made by shorting long-term Treasurys.


Now you could make those bets out of sheer contrariness, and that's probably not a bad strategy. But it just so happens that I have a number of very good reasons for expecting growth to re-accelerate. So you can be more than a lonely contrarian here — you can be a contrarian with a vision, one that will keep you going for the weeks and months ahead while you're waiting to be proven right.