Wall Street Consensus Is Often Wrong

There is one sucessful way to not only make money but to avoid losing money in the financial markets. That is to avoid the 'certainties' determined by the Wall Street consensus and to consider investing into areas disliked by the Wall Street consensus.

Look back a decade ago...The United States' government was running a budget surplus, no Western country could ever imagine facing default and the only BRICs anyone had heard of were the ones used to build houses.

At the time, Wall Street was telling everyone there were two surefire investments which were the road to riches for the average American. The two surefire investments were technology stocks and housing. Subsequently, both the Nasdaq bubble and the US housing bubble burst in spectacular fashion. It was the bursting of the housing bubble which has brought the American economy to its knees.

And at the same time, Wall Street told everyone to avoid other areas such as those "dangerous" emerging markets like China. And gold? It was a relic and only a nut case would invest in gold. After all, it was at a two-decade low of $279 an ounce.

That advice really worked out well - not! While the Dow Jones average has gone nowhere, the Nasdaq was sliced in half, and housing prices collapsed, gold prices have steadily climbed in the past decade to its current level above $1200 an ounce.

Meanwhile, China experienced near double-digit economic growth nearly every year in the past decade. And other emerging markets like Brazil and India have also done remarkably well.

In fact, the emerging markets have done so well that they are countries that are sitting on huge amounts of surpluses and are not at the risk of default as are many Western nations.

So what are the "geniuses" on Wall Street saying today?

The consensus is that gold is a "bubble" and sure to collapse. The geniuses are also saying that China and other emerging markets are also bubbles sure to collapse at any time.

Keep in mind, these are the same people that somehow did not see the almost-impossible-to-miss bubbles that were the Nasdaq and the US housing markets.

And what does Wall Street like? Why, of course, they love US Treasuries. The consensus is urging everyone to get into Treasuries for "safety" reasons. That is laughable!

US Treasuries are the biggest bubble I have seen in my 30 years in the investment industry. It is merely a "momentum" trade that everyone on Wall Street is piling into.

During the Nasdaq bubble, people would "invest" into companies with no realistic business plan, no revenues and no hopes of ever making money. Or if a company had earnings, investors would pay 100 times earnings.

Today in the Treasuries bubble, investors are once again paying sky-high prices for tiny streams of income. For example, in the case of the 10-year inflation adjusted notes (TIPS), investors are now paying more than 100 times the expected annual return.

In addition, the amount of money pouring into bond funds from individual investors is similar to the money flows that went into technology mutual funds at the height of the tech mania. And the chart comparing the performance of the Nasdaq in the bubble years to the recent performance of the US Treasury market is also scarily similar.

Bottom line - it will end very badly some day for investors who buy Treasuries, with the bonds losing 50 per cent or more of their value.

What should investors do? Get out of bonds and look at areas that are out of favor on Wall Street such as gold, other commodities and emerging markets.