Back in the 1980s, there was a famous Bronx borough president who kept a sign on his desk that read, “Crime doesn’t pay as well as politics.” He ended up serving four years in jail.
But when does contrarianism pay, whether it’s in finance or journalism? I asked myself that question while writing this month’s cover story.
The inspiration for the article came in mid-October after I attended our Fiduciary Gatekeepers Investment Research Managers conference in Boston. One keynote speaker after another offered a view that the U.S. probably was the most attractive place in the world to invest.
Starting with Ed Yardeni, who was followed by Richard Bernstein and Meredith Whitney, these keynoters all voiced optimism about the future of the U.S. Since it was only three weeks before a bitter presidential election in which neither candidate articulated a vision of a bright future for the country, I was caught off guard.
Bernstein, the most optimistic of the three, acknowledged the fiscal cliff was a real risk. “I have no faith in Washington, but the situation isn’t hard to solve,” he said.
Named the top investment strategist by Institutional Investor 10 times before starting his own firm, Bernstein’s case for American outperformance was convincing. Moreover, many of his favorite investments diverged from mainstream chief investment officer thinking, which holds that large, global multinational dividend-paying company equities are the investment of choice in this strange new world. In effect, the argument goes, these stocks are the new bonds.
Bernstein prefers small industrial companies with scant non-U.S. exposure and prefers small-cap banks to their larger counterparts. In October, he was quick to note that the equity index with the fastest projected earnings growth in the world was the small-cap Russell 2000.
Most controversial and risky was his call that the U.S. may be in the early innings of the greatest bull market of his lifetime. Had Bernstein been born in 1999, the call wouldn’t have been as gutsy. In reality, he started working on Wall Street in the early 1980s, so you can figure his approximate age.
I, for one, can buy his view that after 2013, most Americans will be pleasantly surprised about the future of the economy. I also think that come 2014 or 2015, we’ll see the beginning of a decade-long bear market for bonds, though I have no idea whether its ending will be mild or bloody.
It’s his call on stocks that has me stumped. It’s hard to see how a society aging as fast as ours produces the bull market of a lifetime.
Evan Simonoff, Editor-in-Chief
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