Always Bet Against the Suckers

Pretty interseting article I got in my email today:

Always Bet Against the Suckers
By Brian Hicks | Thursday, December 9th, 2010

A successful investor always has their own proprietary economic indicators, ones they’ve developed through personal observations in everyday life.

Less about mathematical models, these personal indicators are more about the deductions from gut instincts.

In August 1999, I stumbled upon one when I took my family for a night of fun at Friendly’s restaurant. It was there at a dirty booth shoveling down dry, disgusting Clamboat Basket and chicken strips, that I developed my “Rudeness Indicator."

Here’s how it started…

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We were greeted by a hostess on a cell phone talking to her friend. A roll of the eyes and a long, exhaling sigh… I could tell she resented me for brining my family there and interrupting her day.

It took 10 minutes for the waitress to come to our table. And all she did was bring water.

Another 15 minutes went by before she took our order. During those 25 minutes between being seated and ordering, she walked around joking with the other waitresses, constantly fooling with her hair and nails.

The poor manager in charge of controlling this circus was running around barking orders while bussing most of the tables himself. I could tell he was a day away from firing everybody — or quitting.

The girls just tuned him out... The waitresses were beyond rude. They hated the customers.

Lazy and constantly looking at the clock, they could’ve cared less about making tips.

It was so blatantly absurd that I thought for a moment I was on a hidden camera prank show. And that’s when I realized Friendly’s was scraping the bottom of the barrel of the hiring pool.

And I also realized they didn’t have a choice: They were stuck with this pathetic crew of staff.

You see, this was August 1999. The stock market was booming. The economy was firing on all cylinders. The United States was at full employment.

Anybody who wanted a job could get one within a day.

In fact, attracting new employees meant handing out big signing bonuses, stock options, and BMWs. Remember those days?

Well Friendly’s found itself in a similar situation, but with a different problem.

Desperate to find live bodies to fill waitress positions, Friendly’s had to hire employees straight out of inner city neighborhoods and transport them 20 miles out to their suburban restaurants.

It wasn’t just Friendly’s, either... I went to the nearby BJ’s, Sam’s Club, McDonalds, and even a Target, and I encountered rude employees.

It was at this point I knew the economy was at a top. It couldn’t go any higher.

Think about it... If employers are forced to hire people who a) don’t care if they get fired (so they're rude to customers) because they can find another job within hours; or b) don’t want to work, then the economy is overheating. It has nowhere to go but lower.

Couple that with the fact that everybody was asking me about dot-com stocks...

People who had never played the market were now playing it. This was the epitome of the "greater fool" theory.

These people were, dear reader, the suckers.

The next morning, I went to work and shorted Friendly’s and began selling my long positions.

We all know happened the following year...

I’ve used my Rudeness Indicator since to call market tops. It usually works.

However, I’ve developed another stock indicator that I think will be as successful as my Rudeness Indicator...

Obama’s Clinton Moment

I want you to take a look at this chart of the Dow from the mid-1990s...

friendlys

In September 1994, the Clinton Health Care Bill was declared dead. It wasn’t a coincidence that stocks and the economy took off once the final nail was hammered in the health care bill coffin...

Clinton’s hard-left base urged him to fight on, to get universal health care passed. This was the Progessives' moment in the sun.

But Bill got the message.

The Republicans swept into Congress with the Contract for America. Clinton now how to deal with divided government.

So Clinton did what any good politician does: He got out of the way… and took credit for the subsequent, booming economy.

And he never again tried to get universal health care passed.

Smart dude, right?

His hard-left base was livid with him. But it didn’t matter to Clinton...

He knew the golden rule: True believers (the naïve) are always first to the slaughter-house. They are to be used. This rule is as true for politics as it is for the stock market.

I have a simple rule I live by when it comes to American presidents: The higher the expectations when he takes office, the more disappointing he becomes. If a president takes office with low expectations (Bill Clinton, for example), he tends to outperform.

Had Obama been a stock at the time he took the oath, I would’ve shorted the heck out of him.

I mean, Obama came into office with an 80% approval rating. And like the full employment of 1999, there was nowhere to go but down.

This past Monday, Obama sacrificed the naïve. He betrayed his base by agreeing to extend tax cuts to all Americans. His left-leaning base is imploding with anger. Just watch MSNBC and see for yourself.

For me, this is great news. I always knew Obama was a cutthroat. I love it.

It’s now time to go long Obama.

Stay tuned,



Brian Hicks
Publisher, Wealth Daily