Whether it be stocks and bonds, politics, or philosophy, contrarians are some of history's most notable figures, like Sigmund Freud, Galileo, and FDR. So, if contrarians are sometimes so valuable, how does one tell them apart from the frauds? There are guides to determine when its time to follow the contrarian, with a good chance of being ahead of the crowd. Homework is required, however.
One of the best examples of fruitful contrarian behavior can be found in the stock and bond markets. In today's markets, individuals as well as corporations are players in the markets. The host of individuals for the most part, are followers. The market goes up, some folks accrue wealth while it is, and with this 'proof', the crowd follows (all too often, too late to repeat the performance of the contrarian who bought when the markets were at or near their bottom, (or sold when the markets were at their top).
In the markets however, the successful contrarians are not taking contrary positions in the hope of luck visiting their action. They do their homework, create for themselves forecasts based on the best available evidence to maximize the potential of their action, and then they play the averages. By, 'play the averages', I mean simply, that they then rely upon something unforeseen not occurring to derail their forecast. In other words, luck. But, like 7 card stud poker, there is always an element of luck, but, those who make their living at the game, exercise a wealth of expertise and knowledge in probability and statistics and their study of human behavior at the card table, just as the contrarian investor does in the market exchanges. More often than not, their forecasts will prove fruitful.
Cosmological mathematicians are working in this same arena in their attempts to explain the Big Bang theory, infinity in Einstein's equation, and the physics of black holes, for which their currently is no understanding, or provable explanation. They are creating mystical mathematical equations to introduce bizarre concepts like Dark Energy, Dark matter, and Membrane universes (branes), none of which are observable, measurable, or in fact, exist as far as we know, except in their equations. But, these mathematical concepts are not fancies pulled from dream states. If one accepts, as astro-physics people do, that the universe is knowable due to laws and rules governing its events, which history has demonstrated repeatedly, then finding mathematical expressions that explain events, has at least some chance of being proved correct. If observable predictive proof is achieved that such an explanation works, then the likelihood the concept is correct, increases dramatically.
I love the TV series, House, M.D., because the show is all about discovering the unknown via medical diagnostics, with the human element of fallibility thrown into the mix. And like all discovery, risks of being wrong are taken, rigors of logic, experience, and known fact are heavily relied upon, and the contrarian position often proves to be the right diagnosis due to Dr. House's gift for creative insight, predicated upon the rigors of logic, experience, and known fact, when those alone fall short. Adhering to the process of elimination and Occam's Razor, the chances of discovering the correct diagnosis are vastly improved, though never guaranteed, especially, in time to save the patient. Luck is enhanced by minimizing reliance upon it.
The successful Contrarian is engaged in precisely this kind of behavior, enhancing luck by minimizing reliance upon it. Contrarians will be wrong, but, the successful ones will be correct more times than not, and that is what turns contrarians into leaders, whose actions others follow; (and where timing is crucial, too often, too late.)
Several contrary positions are worth noting today in America. The majority of the public believes our economy is going to fail, according to polls. It certainly will, if Republicans win the day in preventing the debt ceiling from rising in the short term. The economy will fail if our nation's lenders are not provided a credible plan soon, for ending our deficits and eventually bringing down our national debt in the foreseeable future. The economy will fail if the now even larger, 'Too Big To Fail Banks' repeat their performance of ignoring and refusing oversight and regulation regarding capital requirements, default swaps, and overextending their borrowing.
But, how likely are any of these to actually occur? Americans were pretty much oblivious to Islamic terrorism until 9/11/2001. Once disaster strikes, or, becomes obvious to occur, Americans become very responsive. Americans wanted no part in Japan's and Germany's expansion in the 1930's. However, Americans became the victors in the war against those nations once Pearl Harbor had been bombed. So, again, I ask: How likely are these above mentioned economic disasters to occur?
Nearly everyone in a position to make a decision on the Debt Ceiling is acutely aware of the economic disaster that would ensue if they failed to raise our government's debt ceiling, and thus avert default on our interest payments to lenders, or divert all federal revenues to those interest payments and military and halt nearly all other government functions. These decision makers have their own wealth and savings invested in our economy. How likely is it that these decision makers will refuse to raise the debt ceiling?
Nearly all our decision makers and a majority of Americans are now aware of how unregulated greed governed the actions of the large investment banks, AIG, mortgage companies, and market derivatives (credit default swaps), crippling our economy, and costing 10's of millions of Americans their jobs, wiping out 100's of billions in 401k savings plans, pension plans, and small business owner savings. How successful are Republicans likely to be in preventing legislation to oversee and regulate these large financial corporation's behavior going forward?
To both of these questions, my answer is, not very likely. That makes me a contrarian relative to popular opinion. On the third question however, I am still reluctant to take a contrarian position precisely because the evidence, logic, and historical data don't support it.
That question is on whether our Congress can provide lenders with a credible plan to eliminate our deficits without destroying our economy, and eventually buying down our government debt. Remove politics from the equation, and accomplishing this task is very doable. But, one cannot remove politics from the Congress anymore than one can remove the galaxies from our universe. And the politics are very simple, and simply in the way.
Republicans are absolutely dependent upon the corporate, business, and wealthiest individual's contributions and dictates to win elections. Without the donations from these entities, the Republicans could not win a spitting contest with a road kill deer. The Republican Party constituents are all minorities. The wealthiest in America are a minority. The corporations are a minority. The business community is a minority. The right wing evangelical groups are a minority. The rural libertarians are a minority. If all of them voted, they would still be hopelessly outnumbered by the other 200 million Americans.
Republicans, therefore, are absolutely dependent upon the donations and contributions of these wealthier minorities to raise the money to buy the expertise in marketing and advertising and sophistry, to convince a sizable portion of their non-constituents to vote for them (the independent voting block). Hence, the Republican's policies must endorse the wishes and whims of the corporations, business community, and wealthiest Americans like the Koch Brothers, in legislation.
And there's the obstacle to passing legislation that would gradually eliminate the deficit and pay down the debt without destroying the economy for the rest of Americans. If the economy fails, the corporations will simply pursue their profit motive overseas. If the economy fails, the Koch Bros. billions in wealth will buy them dozens of estates in Europe, S. America, and New Zealand. If the economy fails due to the greed factor, the successfully greedy can afford to relocate to other economies. The wishes and whims therefore, of the corporations and wealthiest do not fear an economic collapse due to the failure of the middle class to participate as consumers. Corporate greed is focused on this quarter's and this year's profits, exclusively with little to no regard for future economic stability. This is intrinsic in shareholder, board of directors psychology.
So, as long as the Republicans control one House of Congress or the White House, developing and passing a plan to eliminate deficits over the next 10 to 15 years without destroying the consumer middle class's ability to participate in this economy, is highly unlikely. And the Democratic Party lacks the unified platform and adherence to that platform, to prevent Republicans from potentially controlling some part of the federal government. Democrats have their conservatives who will vote with Republicans on these issues, and far Left liberals who would gut our capitalism in the name of the consumer middle class, which alienates the business communities and many of the wealthiest who contribute to political campaigns.
I want to be a contrarian on this issue of whether or not our Congress will pass a plan to reassure our creditors in time to save our economy as the rest of this decade unfolds. But, I cannot find the evidence, the historical record, or the logic to support taking a position in opposition to the majority of Americans polled, who believe are economy is headed for defeat. If I am overlooking something, I would greatly appreciate your insights that might help me become a contrarian on this issue.
The stock markets are down, a correction is underway, but, the economic data portends an economic boost for the Fall and next year. Having gotten out of the markets in May, I am now taking the Contrarian position of buying into the markets a bit more with each big drop. This is how contrarians succeed. They do their homework and minimize reliance on luck and ignorance. Moving against the crowd takes effort, but, the most successful are rarely found in the midst of the crowd going in the other direction.