...What’s next for stocks now?
There is tremendous optimism and great belief in the equity markets. I think the stock market today is very similar to where the gold and silver markets were in March to May of 2011. They just kept going up. I remember going to meetings where people were like "Ah... I think we should buy gold and silver". At that time Silver was at about $42 and it went to $50 but then dropped to $20. That’s how I think of the market today.
...Isn’t it encouraging that housing is doing better now? What makes you so cautious?
What irritates me is margin debt, the money that people borrow to buy more stocks. Not surprisingly, it is extraordinary highly correlated to the stock market because it’s actually one of the main drivers of the market. It’s at an all-time high in terms of absolute level and it’s at a very high level versus GDP. That is something to be concerned about. But what really matters is when it turns down, because it goes up in a very persistent trend and when it drops that’s when you have forced liquidation because of margin calls. There is no indication of that now because margin debt is still moving higher. But people who are saying there is no speculation in the participation in the equity market have to explain how they can make that statement.
...Fear and greed – these are very powerful things. But the most powerful of all is need. Need to get a return. When you need it you have to take a risk. It’s like when your rent is a $1000 and you earn $500: You’re going to get evicted. So you go to Vegas and you bet on black. If you lose you’re going to get evicted which would have happened anyway. But if you win you don’t get evicted. So based on need people do things.
[Hoosier's note: I have said at the TPG Forum that I have observed that many Singaporeans are gambling...at the Casinos, at the Singaporepool's Outlets (4D, ToTo, and Horse Racing) and at the SGX (playing 'Contra')]
...What would be a harbinger for the market’s mood turning around?
The thing that I am most fascinated with – and I have done nothing with it – is Amazon. I just can’t get over how little money they make and yet how valuable the company is. The stock price never goes down. It just goes up and up and up and they never make any money. Investors are so patient with Amazon because they think it’s all going to happen. They’re constantly investing in a company that makes no money and hope that one day it will pay off. That’s their bet. I’m surprised that is has been sixteen plus years and they’re still willing to wait. As long as Amazon keeps going up, market confidence and belief in the future is in high season. If it starts going down, it means the patience has run out. And that probably means the patience has run out for the market in general.