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Biggs on Finance, Economics, and the Stock Market: Barton's Market Chronicles from the Morgan Stanley Years by Barton Biggs

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Section 2C: Market Psychology and Investing Philosophy

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Contrarianism

April 5, 1982

In Europe last week, it seemed as though everyone was bearish about something. The Germans were downcast because of Eastern Europe and Helmut Schmidt's decline, the Arabs were depressed because of oil and Iraq, the French were bearish because of their government; only the British seemed a little upbeat, but that was before the Falkland Islands incident.

We continue to be virtually fully invested, and I feel uneasy, but I am still inclined to sweat it out with what I think are the right stocks. The world could be tottering on the brink of high interest rate deflation, which initially could be very painful to financial asset prices, but I think the odds are against it. However, I would like to see commodity prices firm as they did last week, gold stay above $300, and only a little more weakness in oil prices—without a sudden collapse in the price structure. Also, as the second quarter progresses, I would like to see the fiscal 1983 federal deficit reduced and some signs of economic recovery. Weakness in prices and profits is causing credit demand to remain relatively strong as cash flows crumble, and, combined with concern about the size of the federal deficit, is keeping interest rates high. Stabilizing prices and an improving economy would now lower interest rates and not vice versa. I think all these ...

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