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Tuesday, 17 May 2011

Financial Markets Hate You: Opinion

By Ali Meshkati,

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- The market hates you. If investors made this profoundly simple premise the basis for every investment decision they made, it would vastly improve investment results.

All of the organisms that make up the financial markets hate you. John Paulson hates you. Goldman Sachs loathes you. Morgan Stanley wants you to drop off the face of the Earth. Paul Tudor Jones likes you a little bit, but he still wouldn't mind seeing you blowup.

Wall Street has a peculiar relationship with the individual investor, small to medium-sized hedge funds and anybody else who doesn't make up the billion-dollar club. Your capital is sorely needed in order to insure proper lubrication of the financial engine that runs the markets.

At the same time, the feeding mechanism at the top (Goldman, large hedge funds, etc.) relies on you being on the zero side of the zero-sum trade. It's a constant battle to keep you interested while at the same time keeping you off balance.

Recently I came across the survey results from the Chicago Booth Kellogg School Financial Trust Index. The survey describes itself as "quarterly look at Americans' trust in the nation's financial system."

To summarize, despite the historic run of the past couple years in the popular market averages and revival of an economy that was near death, trust in the nation's financial system stinks.

Individual investors feel that the markets can crash at a moment's notice. Stock portfolios are unsafe regardless of the investment. Mutual fund portfolios are not that much better. Hedge fund managers, mutual fund managers, analysts and employees of Wall Street firms are loathsome swine for which the fires of hell are an overly generous accommodation for the eternal suffering they deserve. You get the picture.

Given this level of mistrust in the financial markets, it would be safe to assume that we are in an era of cautious allocation into the financial markets following a prolonged period of severe psychological and financial stress.

The best way to describe it is to imagine a group of golden-haired surfers who have been sitting on their couches for the past couple of years playing Xbox and smoking everything they can get their hands on.

There is word of some big waves that have been coming in for some months now. They go to the beach once in awhile and dip their toes and maybe even catch one wave. But the sedentary lifestyle that they have become accustomed to has inhibited the desire of catching that big one. With all the stories of other surfers getting hurt, it is much easier to hang out at home and remain inactive. Why risk it?

This attitude will undergo a dramatic change once neighbors, cousins, friends and taxi drivers start bragging about the waves they have been catching and what an awesome feeling it has been to be back in the water. It's at that point that the swell from which the waves originated will vanish, just as the beaches and waters see the largest crowds.

The point of this study into hate, loathing and surfing is to demonstrate that tremendous opportunities in the financial markets exist at present. The opportunity is built on a foundation of mistrust and fear of investing capital in the markets. It's a long-term opportunity for a historic bull market that will be led by the ginormous, humongous, monstrous amounts of loose liquidity that has been unleashed into the financial system over the past few years.

It's an inflationary trend toward higher asset prices across the board. Precious metals prices are telegraphing a very clear story for global equities. They are essentially saying that the inflation trade is alive and well. With that, assets prices will rise. The issue of real appreciation is for another article. But appreciate they will.

Corrections will come. We may get one here soon. However, a long-term bear market isn't in the cards. The opportunities to buy into equities will be short lived. The spikes down quickly picked up by those who realize the vastness of the opportunity at hand.

In the meantime, a majority of the investment population will remain in distrust. Leaning to the right when they should be leaning left. Relying on their intuition to profit from a counterintuitive business. Not realizing that the market is now offering them a wax with their brainwash. The market hates you. Remember that.

The greatest bull markets of our time have risen from points where mistrust of everything Wall Street was at its greatest. This bull market is no different. It's only the magnitude of its greatness that is to be decided.

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