Gold, Silver and Other PMs

» Normxxx - Don't Confuse Brains With A Bull Market

Don't Confuse Brains With A Bull Market
Or, in this case, a bear market.

Chip Hanlon, Delta Global Advisors | February 3, 2005
email: Chanlon@deltaequity.com

The title of this article is a great old Wall Street adage that popped to mind a few days ago when discussing the heyday of the internet boom with a couple of friends. The travel, the extravagant lunches, the signing bonuses and, of course, the options... oh, those options.

Personally, I was rolling up on age 30 at that time, climbing the ladder of the investment firm that employed me and was even making a bit of a name for myself as a technical analyst. Things were pretty good and getting better all the time, but I was no internet rock star, which was made abundantly clear by a couple of friends who were living the technology dream; I recall being truly amazed while calculating along with them how much their options were supposedly worth.

Well, we all know how that story ends. In the case of those two friends of mine, they weren't among the lucky few who walked away with some of the winnings.

How about the typical Silicon Valley employees who were a part of that whirlwind- were they geniuses? More likely they were honest, hardworking people and there just occurred a raging bull market right where they happened to be standing.

It's this lesson that continues to bother me about the market's general opinion of the U.S. Dollar today. Despite its rally over the last few weeks, most people I come across still speak with certainty about the Dollar and its pending decline.

Sure, a look at the dollar chart suggests our currency may be a little overbought in the short-term and could be due for a small pullback.

...but I suspect that any pullback will continue to see this asset hold at or around the all-important 80-level on the U.S. Dollar Index.

Why? It just looks to me like we're witnessing a bubble in dollar bearishness.

Who's more popular today than Dollar bears? Predict the Dollar's going to be cut in half and you'll be quoted in the Journal. State that it's about to become worthless at any moment and you'll be even more widely-touted.

Look, I'm no Pollyanna here; I have written many times about the long-term challenges facing the Dollar and, until my December 8th article stating that there were far too many dollar bears for my taste, I had been a loud, longtime Dollar bear myself. That being said, I wanted to write this piece to warn the readers of this site: many of these dollar doomsayers aren't new, many of them have been here for-no joke-10, 15 years and then some, literally predicting the same exact thing regardless of investment environment all that time. Now, they're simply having their day in the sun... their internet boom, if you will.

These people aren't geniuses, they're extremists. Fanatics. I'm not talking about the thoughtful commentary of people like Steve Saville (with whom my opinion currently jibes), John Mauldin (with whom I don't think it does, at least not with regard to the Dollar-and who, amazingly, writes lengthy, thought-provoking articles every week), or a small handful of others.

Many of you know the types I'm talking about-the stopped clocks. If you don't know these dollar perma-bears, however, you had better be careful to look into the long-term backgrounds of that newfound commentator/advisor you like so much... if he or she promised the end of paper money and the demise of America throughout, say, the entire 1990's, then that person could be hazardous to your health. Period.

I've said it before and I'll say it again: the following is the chart of the year:

<img Width="560" src="http://www.321gold.com/editorials/hanlon...">

There are three key takeaways from the chart above:
1) The Dollar's fall is not new; it is now fully 3 years old
2) 80 remains an important level of support on the Dollar Index.
3) Dollar perma-bears were simply on the right side of a trend in their favor.

Geniuses? You be the judge.

To view things another way, take a look at just one foreign currency, the Pound:

<img Width="560" src="http://www.321gold.com/editorials/hanlon...">

Now where the heck is that chart going? Higher? OK, maybe... anything can happen in the market, of course. I do know, however, that Britain's yield curve is inverted; here, that happens to simply be the best predictor of looming recession. It also happens that central banks tend to lower interest rates when recession hits, which doesn't tend to be supportive of the underlying currency.

This isn't an over-arching case for the Dollar nor does it explain away the fact that we still spend too much and save too little, but our paper currency's attractiveness may just be ready to increase vs. that of other paper currencies (this highlights another area of frustration for me: these perma-doomers constantly decry the lack of a commodity backing such as gold to our currency, yet they have no problem falling in undying love with other fiat currencies).

Analyzing currencies, then, is simply an ongoing process of comparing one to another. Because we're in what may still be the early stages of a tightening cycle and foreign central banks are likely at the end of theirs (among many other factors, which I'll have to write about later), the Dollar may just become more attractive than others in coming months. If that occurs, it will make holding non-Dollar assets pretty darned uncomfortable for awhile.

Look, writing this column isn't particularly beneficial to me, personally; my firm specializes in precious metals, alternative investments and trading directly in international markets, so we benefit most from the falling dollar trend.

I also know this opinion will be unpopular, particularly in some of the places my commentaries are often featured. That, however, is where I like to be; over time, I've found that my "thing" is making calls that are exceedingly contrarian, turning point-type predictions.

I was unpopular on April 8, 2004, when I said silver would pull back from above $8/ounce to $6, literally 2 trading sessions before it happened. At the time, the consensus was that the metal would soon be at $10.

I was unpopular in mid-June of last year when I stated on national TV that the rise in interest rates was a head-fake, that they would surprise and head lower.

And I was unpopular when I first wrote in early December, 2004, that it was time for a Dollar rally, so I'm fine being unpopular now. In fact, check your own sentiment: are you itching to write me a nasty e-mail explaining all the things I don't understand about the market/economy/life? That's not a good sign for your case-your sentiment is too strong and your emotions may be dictating your investment decisions.

Speaking of sentiment, what's another one of the most interesting sentiment indicators I've seen recently? The weakling dollar on Saturday night live? The disappearing dollar making the cover of The Economist?

No, here's my favorite: it's the story about the sidewalk money changer in some far-flung Chinese province and how he's no longer accepting U.S. Dollars. Perma-bears take this as the big sign, their "Ah ha!" moment that the Dollar's demise is at hand.

I see it as the rough equivalent to getting a stock tip from your cab driver; by the time that guy stops taking dollars, the currency's move has got to be nearing its end.

Anyone want to bet that same money changer had a "no Euro" policy 3 years ago?

Remember, the extremists have always existed, and they have always been screaming the same thing. What worries me is that investors, in their search for fresh commentary on the subject of currencies, have stumbled across some of these dollar bears without realizing they've been saying the same things from time immemorial.

Let me put this one other way: was Henry Blodget a genius? Likewise, beware today's Dollar bears, who just experienced a bull market in gloom and doom... be sure you're not listening to a stopped clock.

And don't confuse brains with a bull market.

-Chip Hanlon

P.S. For a terribly interesting take on the interest rate environment, I strongly encourage investors to read, "Things Change," by Gary Carmell, President of CWS Capital Management, a highly successful real estate investment and management company located here in Newport Beach.

I'm fortunate enough to call Gary a friend and am familiar with his powerful grasp of macro economics as well as his knowledge of interest rate history. You may not agree with what he has to say, but I can tell you he understands the risks to our global economy and he has been awfully right for a long time. I'm glad he's finally been persuaded to make his commentaries known/available to a wider audience - perhaps you'll even start seeing his essays included here at 321gold on a regular basis. If so, don't miss them!

The content of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

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» Normxxx - Investment is the art of SELLING

Harry Schultz Life Strategies
~ For THINKING humanoids ~ (in 80 nations)
The art of investment is the art of selling

extracted from HSL #645 of Jan 23, 2005 -DJIA 10,393
posted February 7, 2005

Gold
As timer-trackers noticed, HSL continued to call the mkt well. So far so good . I said lastime my upside target was 460-467. We got to 460.10. I then warned that gold's winning streak would need a rest soon & to prepare for it. I said it might correct to only 430-420 but maybe 400. That correction began at 460 & is still in progress. The low so far: 420.

[Normxxx Here:  It's currently [6 February 2005] at $414 even. ]

••• In my Gold Charts R Us (the Bible for gold devotees) I printed a theoretical road map for gold! It shows a 5-stage progression, 3 down, 2 up. Each stage tradable within itself. This format may be too rigid, may break its mold, but, so far, each stage has performed by the book. No mumbojumbo, just price/time/charts.

We're possibly going to top out (so far) in stage 4 rally about now in the 430-435 zone & will then, in theory, begin a descent of about 4 weeks to say 400 (390-410), where we can begin buying. I say begin because I assume most of U sold at higher prices, as Gold Charts members did. In any case, almost every gold chart now has overhead supply to fight through, so pick&choose with care. Look for base building or down wedges & breakouts to guide U. Don't buy just because XX is a lot cheaper than it was. Each gold chart is a different country, has its own personality & quirks; learn them & trade them.

••• By the way, bullion (futures) have been more profitable to trade than gold shares lately, more true-to-chart, less fluky.

• What role has the US$ played in gold weakness? A big one, as usual. The US$ got oversold. I said so in GCRU (published each Wednesday) & we bought the $ for the ride. The $ will rise more (see Currencies) & 'til its ride is over, gold will languish. It's shorterm, but will scare some.

••• Short positions are recommended for those who understand or want to learn shorting & will use stops.

••• Richard Benson of Specialty Finance Group writes "Do U wonder why our govt is so actively involved in keeping the price of gold down? The logical reason is: if the gold price takes off, even the investment masses will look for the real problems (& structural causes) of massive trade & federal deficits & global money creation." Better not let 'em notice.

••• Shanghai Gold Exchange shows 235.35 tons of gold valued at 22.96 billion yuan (US$2.7 bil; euro 2.3 bil) was traded in 2003. In the first 7 mos of 2004, trading volume jumped to 363.76 tons valued at 36.9 bil yuan (US$4.5 bil; euro 3.6 bil). It's lagging data, but shows steep uptrend in vol & value.

••• The art of investment is the art of selling. Always plan to sell whatever U buy, usually as soon as possible, & often several times-as U learn the nature of the item & its mkt. Buying is a lesser skill, & holding requires no skill.

••• Random gold stock comments: Possible bullish down wedges in Glamis, Iamgold, Newmont, NorthgateEx. Novagold: breakout from symmetrical triangle; a buy. Head&Sholder tops in many stks, eg, AAUK, MDG, NRD, TEKB, WRM. EPL-V: dble top. Trouble is: even the bullish wedges are only for rallies, not reversals. So golds are, at best, still in a corrective mode. I hope by the next HSL, it'll be over & we can plan widespread buying with chart backup.

••• Got to go feed the giraffe now. Hope U thought this was a 5-giraffe HSL.

Bye from your Uncle Harry D (for Droll) Schultz

The content of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

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» Normxxx - SKI Gold Stock Prediction

SKI Gold Stock Prediction

Jeffrey M. Kern, Ph.D. | Monday February 28th

Therefore, no true [gold] bull market: A long and large rise is expected but then we'll go through yet another lengthy extensive correction to form yet another higher yearly low.

To tame this bullish feeling inside of me (and in the indices), I can say that prices have not yet exceeded last Tuesday's high of 8.25. If USERX prices fall below 7.77 this week, this will be a signal to stop out the trade. Or in another week, if prices fall much below 8.10. The gold stocks are short-term very overbought (but that's what everyone always says when their buy signals come after a rise, on the way up, as a caveat or a hedge statement). But even if the gold stocks do go down 5%, there will be no sell signal.

There is another buy signal approaching. The very long-term 218-222 index will buy on this coming Wednesday's close. Hopefully prices won't go straight down now to indicate that I just bought another high (the last one being that 1% loss "fiasco" of buying the 8.23 high in the last week of December and selling three days later). Perhaps it can just be a time to sit back and relax?

[Normxxx Here:  Currently, all of my Gold signals are on buy. But keep your fingers crossed, it could be a "bull trap." However, more realistically, this should mark an IT up move to be followed by another teeth grinding (temporary) plunge down. ]

The content of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

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» axolotl - Re: SKI Gold Stock Prediction

Templeton does not like gold. Even at 92, he should be listened to in a careful and thoughtful way.

-- posted by axolotl

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» Normxxx - Re: Re: SKI Gold Stock Prediction

In response to Re: SKI Gold Stock Prediction posted by axolotl:

I definitely agree with him, as an investment. But for ST and IT, you can make money trading and timing Gold. And it's an insurance policy against dollar devaluation, though I concur that a "basket" of sound currencies may be better. The problem is, if we crash-- the whole world crashes with us! There's no place left to hide.

Anyway, for EMT or DMT, gold is an excellent asset class, since it correlates poorly with everything else but cash (to which it has a negative correlation).

Gold will never be a serious currency (or backing) ever again-- there's simply not enough of it at any price. In order for economies not to suffer periodic severe contractions, the money supply must increase at a rate many times that of new gold coming into circulation.

But, while I believe that debt can grow as the economy grows, it cannot grow without limit! Someday we will have a collapse, and the denouement will likely be far worse than the optimists anticipate, far better then the pessimists suppose, and in any case completely unexpected.

-- posted by Normxxx

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» Normxxx - The Harry Schultz Letter

Welcome to GCRU #155 on April 6, 2005.

•It was a wonderful time to have a week’s break! The gold mkt did absolutely nothing. My associate said “I should have stayed in Morocco another week!” The mkt reminded me of the nursery rhyme: He marched the soldiers up to the top of the hill & he marched them down again. Some gold stocks rose & fell back to unchanged on a week ago. Some fell & then rallied back to aprox unchanged. The gold indexes fell, rose, & fell. They did a dead-rat bounce. Bellwether Newmont is the same price as last GCRU. But the Schultz Gold Stock Advance/Decline Line only fell. Had lead boots. That was/is a bad sign. It means there is no base to build on, yet, for the group as a whole. Our ML-Black Box says the legs-down scenario has part of a leg down yet to come. If valid, that’s not much to worry about. In fact it’s something to cheer about—as it means we should get out our buying net to catch the fruit as it drops from the trees.

••Of course, some gold stks have probably completed their corrections & are awaiting a shove to move to new highs, like Teck Cominco’s chart.

•The best of all stocks to trade, Agnico Eagle, shows a mini potential H&S with a target only 1.90 points lower (at 12.30), which would tempt folks like me to buy there. But a rise now to 14.75 would cancel the H&S & become a buy cue. AEM has given almost ideal buy&sell signals for many years, a trader’s dream. We published its weekly chart in GCRU a yr ago or so, to prove it.

•••Our Spinner indicator is negative on most gold charts, will take time to bottom out & rise over the zero lines. Could happen fast or slow, but is worth monitoring.

•••Our below-mkt buy recom in last GCRU looked a bit wild then, but now look very reasonable; no need to change them.

••My password lastime, Raisecash, proved prophetic, & I hope U did. Our passwords are sometimes a 1-2 word summary of all there is to say. Today’s password, gluestuck, tells U what’s happening with gold shares & until we unstick them from the glue, we wait. But with our nets handy, as some of the final stage will probably not wait long for us to get on board.

•••If we go look in back of Alice’s Looking Glass, we see the US$ has gained ground but not dramatically & not evenly vs all currencies. Indeed the bulk of the US$ move has been against the yen. Japan’s govt lost the yen to support the yen. I once discussed this policy with their Finance Minister Fukuda in Tokyo, decades ago, but that’s a story for another day. The other currencies are correcting in very different measures. The SwFr is the 2nd weakest at the moment. £ & C$ & A$ the strongest. NZ$ fell to triangle apex support.

•••STOPRESS: As I write this section, on Tuesday, gold stks are behaving oddly. 6 are down BIG, 5 are up BIG. It could be a bottoming- out, turning-around stage, as mentioned above, but I thought it was some days ahead. Maybe not. Maybe it’s happening now, or beginning to happen. See the PS below, which will be written Wed morning early with the benefit of Tues closing prices & charts. That old saying: it was the worst of times; it was the best of times, may apply here. Bottoming out gets rid of the downdraft & introduces the updraft. Each stock obviously is at its own stage of unfoldment. In the under-charts comments U’ll see our thoughts on how each one stands. Be ready for what may be an early Spring flowering. Nets at the ready!

•••Oz govt expected to raise interest rates to 5.75%. Hope U took my advice over the last 1-2yrs to buy A$ & NZ$, even if U never heard of the countries. These currencies have been rising for a very long time & these interest rates are mouth watering. They may correct a bit more but they pay U for waiting.

•••Re CRB index: I expect a bit more correction, maybe back to breakout of Sym/Tri, especially in industrial commods.

•••Re ECB: no rate increase expected due to low European growth.

••Bullish Consensus svc has gold at 66%, US$ at 36%, not much changed. They say gold neither overbought or oversold; outlook: neutral/bearish, as of 4/4. I agree.

•••For HSL subscribers: I forgot to give the date of next HSL in last issue. It will be May 22-23. Next FMU (Mkt update): Apr 24-25.

•••Mkts getting hyper-active. Stand by to abandon perch. --And byebye for the moment from your Polish Predictor, Uncle Harry

PS: In my Stopress above, I noted the extremes of BIG ups & BIG downs in some gold stks on Tuesday. Those extremes were whittled down as the hours went by. That means the stocks with big DOWN moves moved up from them (hinting a poss bottom for those stocks), & the big UP moves were trimmed back (hinting that the overall climate isn’t ready for too much upside all in one day, not yet). This moderation is probably a good thing. We need time to rebuild the Spinner indicator—which portrays stock/mkt strength or weakness. Spinner has been hesitant. Overall, the bubbling share action on Tuesday appeared moderately bullish to me. But then I looked at the Spinner action at the Tues close; still weak, no pulse. And the A/D line showed no pickup.

••I haven’t mentioned the potential worse case for the present gold bullion chart pattern. It’s probably 420 +/-. That isn’t much lower than today’s price. So, we’re approx there. In theory it could make an intraday break to 415 but I doubt that. Unless the US$ moves up & over 85.20 & holds there, in which case 415 would be certain. Unfortunately, The $’s Spinner is bullish (& a bit negative on gold) so tread lightly. If $ Index dips under 83.50, that threat would subside.

••Also, bear in mind that gold shares sometimes bottom 1-2 days ahead of bullion. We’ll see soon enough. Meanwhile, watch daily price action of the $ Index & your favourite stocks, plus bullion, & they’ll tell U when the trade winds are blowing your way.

••Gold opening in Europe Wed AM up $1.00.

Uncle Harry Schultz

<img src="http://www.depression2.tv/hsl/gcru-1_fil...">

http://www.hsletter.com/HSLnewslet.htm

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

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» Normxxx - Harry Schultz Life Strategies

Harry Schultz Life Strategies
~ For THINKING humanoids ~ (in 80 nations)
An awful time to be writing about it [gold]

By Harry Schultz | 11 April 2005
extracted from HSL #646 March 27, 2005 - DJIA 10,443

Gold is a barometer. That's one of the reasons politicians always talk it down, badmouth it & try to limit its rises. They often make it illegal to own (eg, Nazi Germany & the USA under FDR & until the 1970's). But the barometer continued to function, despite Hitler & FDR. It has ever been thus & always will be. Gold measures the world's economic, monetary & political climate. So an article about gold should concern itself mainly with those factors, not just gold itself. Fortunately, the charts of various mkts tell us much of what we need to know. Currency charts speak volumes! The US$ took over the lead role from the £ when UK gave up gold as backing & the US adopted it. But US politicians, loving power & hating control mechanisms (like gold or spending limits imposed by legislatures), gradually removed the gold backing - defying the US Constitution (which they pledge to uphold but rarely do).

So the US$ was left without backing, but was by that time already the world's main reserve currency. The system enable[s]the US to free-load off the world. Washington wasn't content with owning a dishonest roulette wheel; they had to exceed all rational limits on govt spending, & have amassed debts & deficits beyond records by any nation. Result: Asian nations want to exit the US$. That's easier spoken than actioned. Yet, it's slowly happening, via buying fewer US bonds & selling a few here & there when DC isn't looking. As economist Stephan Roach says: "The standard US response borders on arrogance: 'What choice do they have?' The presumption is US has Asia over a barrel -- unwilling to accept a drop in export competitiveness that currency appreciation might bring.

"This misses a key cost-benefit trade-off -- weighing a hit to exports against a portfolio loss in US$ assets. The bigger the build-up of $ reserves, the more this trade-off is likely to tip toward $ diversification -- spelling the end of US cut-rate foreign financing." Our currency charts reflect this. All non-US$ currency charts are long-term bullish. US$ will have sharp rallies (like today), which are often achieved through intervention or oversold conditions & short covering, but the longterm trendlines are clear. The $ remains a sell, which means gold remains in a bull mkt. $-rallies will be gold corrections, usually tradable. Other charts that affect gold: bonds, interest rates, oil, CRB, all of which are long-term favourable to gold.

•• As I said in GC, avoid the term gold bugs; it's belittling. Instead say: gold bulls or gold advocates.

•• Chris Powell rightly says: "The World Gold Council exists to make sure there is no real world gold council. It is a straw man, set up to prevent any realistic effort to help the gold cause."

••• Charts show gold at critical shorterm make/break point, an awful time to be writing about it. If gold moves up from 3/24 low of 427, (basis June futures) it's headed for 448-450 area, for a test; a break above that will test Dec 462 peak. But if gold breaks 427 now it could head for test of Sept 04 uptrend at 417. Breaking that could dip to apex of massive triangle at 404. But even that is still well above the long-term uptrend line.

•••• Am off for the Alps now. Snowlong!

From my wigwam to your wigwam.
Heap big good wishes.
Uncle Harry D (for Deflation-Doubting) Schultz

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

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» Bill_Duffy - Re: Harry Schultz Life Strategies

.
If this is true, Result: Asian nations want to exit the US$. That's easier spoken than actioned. Yet, it's slowly happening, via buying fewer US bonds & selling a few here & there when DC isn't looking.

Wouldn't the dollar fall? But it has been going up in '05

-- posted by Bill_Duffy

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» Normxxx - Re: Re: Harry Schultz Life Strategies

In response to Re: Harry Schultz Life Strategies posted by Bill_Duffy:

Remember always: the sole thing controlling the value of the dollar is its scarcity/desireability. Money (or at least the reserve currency) acts like any other commodity, its value goes up as it becomes increasingly scarce, and its value goes down as it becomes more plentiful. The Chinese and Japanese are currently just warning of future changes; so far they have done nothing concrete. Plus, up until quite recently, international trade has gone up (requiring more dollars) as the world economy has sped up; this may change after this year.

-- posted by Normxxx

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» Normxxx - The boys in the boiler room

Contrary Indications: The boys in the boiler room

By Gary Tanashian | 18 April 2005

Toward the end of 2004, I began receiving a lot of phone calls from brokers who wanted to "put me into euros" or help me "take advantage of the weak dollar." To one of these do-gooders (who only had my best interests in mind I am sure), I replied "why would you want me to buy the top?," but the click on the other end of the line gave me the answer. It was time to offload the weak dollar trade to Ma 'n Pa.

Thanks in part to the boys in the boiler room, I was well prepared for the current dollar rebound, and in fact, until the end of this past week, held a total of zero gold stocks (excluding Central Fund of Canada and the gold ETFs) as the mining sector headed toward a short term capitulation. So, thanks boys!

Goldbugs bugged

It appears that a recent article of mine was an irritant to some perma-bull goldbugs. It read, in part "Gold related investments should not be treated as religion. In so far as one may want to preserve wealth during times of declining faith in a fiat currency regime, gold should be strongly considered. But to place it on a pedestal above all other assets known to man is to be blinded by its mystique, its lore and its legend. It is a tool to be used for economic survival or prosperity, and if you're reading more into it than that, you may well be setting yourself up to be on the wrong side of the trade one day." In fairness, it is more the gold mining stocks that I view with suspicion, as the metal is truly timeless and deserves a place in a balanced and sensible portfolio. Still, the response to this sentiment, combined with the perma-bullishness observed in many quarters, gave a good indication of what was to follow. Namely, a painful correction was visited upon a sector that has actually been consolidating its gains since late 2003. Bullishness needs to be wrung out and a lot of the come-lately "bugs" need to be flushed and sent back to their tech stock speculations or whatever flavor of the day is next. Could it be that a sizable amount of the "Go Gold!" crowd is made up of miners-only bugs? Meanwhile, those who hold physical metal are probably not losing much sleep and I would guess, have been doing much less cheering all along.

It is time to watch for capitulation in the mining sector. Judging by last week's action, it seems the process has begun.

The Professionals

It amazes me how generous the pros are in providing the signposts a contrarian needs to get on the right side of the trade. Goldman-Sachs' loudly trumpeted call of "oil to $105" was a gift for anyone looking for a near term top in that market. Another gift was the input I received from an investment professional three weeks ago, after I warned of a deflationary "whiff" in the air. His words were [paraphrased] that "commodity bull markets usually run for 20 years and China is a huge engine for growth." After that, I was no longer content just sitting out the coming gold stock and commodity massacre, and in fact bought puts on the XAU and Newmont Mining (since closed out). For what it's worth, I believe both of these calls are valid for the longer term. It's just that I hate sitting through gut wrenching corrections when it is far more pleasant sensing their onset and stepping aside, waiting for the bargains to show up.

Financial Media

I truly regret that by the time I am able to tune in to CNBC, the financial channel's programming has shifted to comedy, news magazines and reality shows. All the best contrary indicators ply their trade earlier in the day. I miss Larry Kudlow. A strong dollar tout from him always seemed to set the stage for another leg down in the buck's bear market.

A few months ago, a well known Smart Money analyst wrote an article espousing the virtues of owning gold in a dollar inflation environment. I posted the article on my newsletter's News & Analysis page along with a tagline that read "okay goldbugs, here comes the mainstream." What I meant was, tread carefully, the boat is getting kind of full on one side.

By the end of 2004, virtually every major financial media outlet was trumpeting the decline of the dollar and highlighting Warren Buffett's dollar consternation and dollar-contrary positions. They will ultimately be right of course, but you can't get the boat more loaded on one side than this. A huge counter-party for a short term strong dollar trade was created. This is the essence of the saying "if everybody knows something to be true, chances are it's wrong," at least in the short term.

Ma 'n Pa

I was hearing entirely too much of these words in local daily life: "Dollar," "Inflation," "Energy" and "China." To me it sounded like fade, fade, fade and FADE! It is sad that all too often, Ma 'n Pa will become aware of and take action on a story just in time to be chewed up by its first major negative adjustment. Fundamentally of course, it certainly looks like Ma 'n Pa will be right if they can just hang in long enough, with deflation once again providing a nice carpet for future liquidity bombs.

Da Bears

These guys are on top of the world right now. Most markets are getting croaked and it looks like all the lumps they have taken over the last two years can be left in the past. One should watch for signs of overconfidence, as well as accelerated hedge fund shorting activity, and of course, the dreaded bear on the cover of Business Week. Here are two charts that show sentiment is changing from blindly bullish to bearish on a short term basis:

<img src="http://www.321gold.com/editorials/tanash...">

<img src="http://www.321gold.com/editorials/tanash...">

Sentiment is eroding quickly. Can pervasive "The Bear Is Back!" type headlines be far behind? Late last week I took small initial bullish positions in gold stocks, alternative energy and the Dow. This may have been a bit early, but it was time to grit my teeth and begin to buy the fear. The news is mostly bad with corporate America showing stress fractures, talk of a crash and depression, Ma 'n Pa worried about the economy and Joe Six Pack calling the top in the Dow. As you may know, my newsletter has not sported the most rosy outlook for the big picture, so I will have to allow for the possibility that this is indeed the endgame. But I will also allow for the possibility that the Fed will stick to Dr. Bernanke's vow to never let IT happen here. So I remain open to positioning for a hyper-liquidity scenario. In this scenario, perma-bears may be an endangered species.

Me, Myself and I

I reserve the right to fade myself. My own greed impulse clouded my judgment in one particular stock speculation that "blew me up" beyond what I would normally allow. It happened because I felt quite sure of its prospects. The trade is currently ongoing and may indeed pan out. But the pain it has caused to this point is a lesson that is worth heeding. There is always another side to the trade and it is worth one's while to thoroughly explore all angles from a contrarian viewpoint.

"Always on the outside of whatever side there was" -Bob Dylan

It is not natural to be constantly on the other side of the accepted mass viewpoint. It takes work, as human instinct is to herd. In the herd there is comfort, reinforcement and belonging. Success in the financial markets demands that you take uncomfortable positions at those times when the public mindset claims that you are most wrong. It's a crazy business at which many people are simply not wired to succeed. That is why they seek out investment professionals to manage their finances for them. It is a scary situation when you consider that one of the most reliable contrary signposts is indeed the professional mainstream money manager community. Still, it does my heart a world of good every time I receive an email from a certain CFA who puts great thought into his clients' well-being, into capital preservation first. He understands that there is indeed a counter-party to every investment and sometimes that counter-party may be right.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

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