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Picking Off the Sissies, Again

Feb. 08, 2011 6:44 AM ETDIA, SPY, QQQ, GLD, SLV, GDX, GDXJ, TLT, IEI, SHY
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Gary Tanashian's Blog
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***Note*** SeekingAlpha does not generally choose to publish my articles because they have little valued content to them.  If you are not part of the casino stock gambling herd and want grounded technical and sentiment analysis on the markets as relates to the most important macro theme (the interplay between systematic and ongoing inflation and periodic bouts of deflation), then come on over to my regular blog.  I have less and less time available to maintain this little corner of the mainstream financial media.  http://www.biiwii.blogspot.com

The following is excerpted from the January 30th edition of Notes From the Rabbit Hole.

NFTRH 'charter' subscriber and 'Gold This Morning' blog contributor, Jonathan relayed the beautiful title phrase to me in Q4 of 2008 as we both became bullish during Armageddon '08. NFTRH9 noted...

"Yes Gary, I spoke last night with one of the legendary street traders from the old days (pre 1990). He wants to leave Miami and work free at our shop because he has never seen a time when there is more money to be made the old fashioned way... picking off the sissies."

The best traders know when it is time to get opposite the herd. This is not easy to do because the act of being contrary by definition comes with much more negative reinforcement than anything else. Trend followers are awfully right for long stretches of time, until they are suddenly wrong, and go into hiding... or revision mode. Become known as a bull, bear, stock, precious metals or commodity guru, stake out your territory, and then blame the manipulators when the violent turn comes. This is a tried and true tradition in market analysis.

Being a successful contrary player is different, however. If I am doing my job correctly, I am pissing off bulls, bears, gold bugs, commodity gurus and deflationists at varying times, and as their respective favored trends mature. It is imperative not to join any of these teams.

Sure, I have been big picture bullish the gold sector for nearly a decade now, but as noted several times in the past, I would rather not have to be. If I were not bullish on gold, it would mean that I lived in a society and participated in an economy that was in the sweet spot of a secular cycle yet to come, like in 1980, as Paul Volcker got serious about regaining austere control through monetary policy aimed at regaining real confidence in the system.

Volcker did not just talk the talk; he walked the walk and took interest rates as high as they needed to go to show he was serious. It can be argued that he created a wellspring of goodwill that subsequent Fed officials have opened up as a trough for herds of pigs to drink, wallow in and ultimately, pollute.

In November of 2008, the 'sissies' theme was put forth in reference to getting bullish on many asset classes, markets and in my case at least, getting bearish on the Deflation argument, which the public had quickly gotten up to speed on, as evidenced by the Time cover that was also included in NFTRH9.

As noted last week, I cannot apologize for the bullish contrarian signals currently popping up in gold, nor the fundamental ones. Does NFTRH have a preordained right to be well, right? If it had that key, I would not be spending two thirds of my weekend writing and editing the newsletter.

But bear in mind that the writer claiming risk is sharply reduced in gold today is the same one who got certain gold boosters' pants in a bunch with some downside targets just weeks ago. There are times to be appropriately bullish, and times to be guarded. It is okay, and it is all part of a bull market. Cheering and bashing are just noise.

What I currently see in gold is a cocksure arrogance creeping in among the usual trend follower suspects that the monetary metal has made an important top. One might assume this is due to the gold bear not having been on board the secular run (the bull market has thrived on these people all the way up), or possibly due to his having been burned badly, compliments of the actions of Mr. Volcker, in 1980.

From 1980 on, gold was a four letter word to my parents after being 'put in' by a stockbroker at the very freaking top. Today, with a little help from their hard working boy, they are doing much better (with the modest funds they were able to bring themselves to allocate) where gold is concerned. And I do not intend to have them sitting there like bag holders when the bull market peaks, either.

As stated in NFTRH120, 'Nominal gold is bullish on a risk vs. reward basis; in fact, it is compellingly so.' This week we will again review many of the fundamental and technical reasons why, and also importantly, review gold's relation to other assets to see if its 'real' price is any closer to indicating whether the 'gold stocks above all others' stance remains on track [edit: after completing NFTRH121, the gold stock investment (as opposed to trading) case has not improved, as explained later in the report]. This in turn, may help indicate coming events in the broad markets, commodities and economies as well.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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