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Against the Herd: 6 Contrarian Investment Strategies You Should Follow

ISBN: 978-1-118-08318-5
208 pages
December 2011
Against the Herd: 6 Contrarian Investment Strategies You Should Follow (1118083180) cover image
CNBC's Fast Money Commentator Steve Cortes shows how to buck the trend and become a well-informed investor

The public needs to think independently and not be duped, particularly because those who are selling their messages or promoting their ideas have a plethora of powerful media through which to do so. Against the Herd presents six contrarian views of major events that will shape the future. Steve Cortes of CNBC pulls no punches in explaining these trends.

Many will find his views counterintuitive and even controversial. Some will find his forecasts alarming. But open-minded readers who are willing to heed his well-informed advice will find it illuminating, beneficial, and profitable.

  • Steve Cortes presents six contrarian views of major events that will shape the future for investors including the fall of China and the end of the golden era of free trade
  • The contrarian stances are presented because they are actionable
  • Reveals how these events will affect global markets and specific investments, and how and when to take advantage of these key moves

Against the Herd shows you how to profit by bucking conventional wisdom and what to do to get ready when situations call for contrarian investing.

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Introduction 1

Chapter 1 The Corleones Meet Confucius 7

The Chinese Mirage of Miracle Expansion

Chapter 2 Dolls Are Meant for Children 33

Japan Stares into the Abyss of a Death Spiral

Chapter 3 Can’t Touch This 57

Resist the Allure of Gold

Chapter 4 House of Pain 81

Housing Does Not Recover Anytime Soon

Chapter 5 You Can’t Handle the Truth, or the Volatility 123

Don’t Own Stocks (or at Least Not So Many)

Chapter 6 Still the One 151

Get Long-Term Bullish on America

Conclusion 175

Notes 177

Acknowledgments 185

About the Author 187

Index 189

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STEVE CORTES appears daily on CNBC's Fast Money where he is one of several regular commentators. He also appears frequently during Fast Money's "Halftime Report." He is the founder of Veracruz, a consulting firm providing real-time market research to brokers/dealers, hedge funds, and sovereign wealth funds. His research covers topics ranging from global markets and equity sectors to currencies and fixed income. In addition to trading independently, Cortes provides market consulting services to a number of institutional clients.
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December 14, 2011
Against the Herd

Human beings look for safety in numbers, but when it comes to investing, going with the flow is often costly. Danger is seldom in the most obvious places. Often the bathtub of water presents more danger than furious seas. For example, home mortgages had served for decades as the dependable, and even boring, basis of our ownership society. So when masses of people decide assuredly on an opinion, history argues to take caution, because the madness and delusions of the crowd can create dangerous and untenable scenarios that imperil all but the most independent thinkers.

In his new book Against the Herd: 6 Contrarian Investment Strategies You Should Follow (Wiley; December 2011; $29.95; 978-1-1180-8318-5; Hardcover, Ebook), contrarian investing expert Steve Cortes demonstrates how the savvy investor can bypass the motivations of the media and Wall Street to break from the pack and think for themselves.

Cautioning readers to develop and maintain a healthy skepticism towards conventional market wisdom, Cortes presents six alternative opinions on major international investment events, including:

  • The Chinese Mirage of Miracle Expansion: Cortes presents the inherent contradictions and attendant dangers endemic to China as presently structured. He makes the case that China’s fierce expansion is unsustainable, representing an economic mirage, analogous to Japan of the 1980s and a similarly dangerous investment. Far from offering a credible threat to American supremacy, China will in fact be fortunate to even maintain itself as a unified state.
  • Japan Stares into the Abyss of a Death Spiral: Cortes examines how the severe demographic and fiscal implosion of Japan will force a financial market reckoning far worse than the previous two lost decades of no growth in Japan. He believes that Japan’s problems are terminal and that recent events are hastening its demise.
  • Resist the Allure of Gold: Contrary to popular opinion, inflationary fears are overblown; printing by the federal government is not creating a velocity of money; gold is a poor inflation hedge anyway; and the bullish gold trade is far too crowded for comfort.
  • Housing Does Not Recover Anytime Soon: Cortes assails the myriad distortions created by government intervention in housing, describes the giant profits realized by one maverick investor willing to bet “against the house,” presents the hurdles still facing housing, and prescribes a strategy for facing the future of housing.
  • Don’t Own Stocks, or at Least Not So Many: Equities are dangerous for most investors. The masses would do well to return to the bond-heavy investing styles more familiar to our grandparents than to the equity-heavy culture prevalent since the 1980s.
  • Get Long-Term Bullish on America: Cortes discusses the advantages to investing in the United States, despite S&P’s recent downgrade. He points out that unlike any other industrial nation, the country is growing demographically and will have more workers in coming decades. Growth means an ability to shoulder debts, even one as massive as the U.S. Treasury’s. Furthermore, stress, global capital still flows straight into U.S. assets in times of market stress.

Cortes sees a world abounding in risks, particularly in Asia, where both China and Japan present massive macro threats to the global economy, and American investors are still too much invested in equities and gold. “I foresee a world very different from the last quarter-century, in which demographics and a preponderance of world peace almost guaranteed benevolent financial markets.” But a world abounding in risks also means a world abounding in opportunity. 

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