HAUKE: Great ideas not as good as excellent timing

There is an old Wall Street saw that is finding more relevance with each passing day: “The bodies are piled high on Wall Street of those who were right at the wrong time.”

The stock market can be a brutal place, and this expression perfectly captures that brutality, in addition to offering a valuable lesson for all of us today.

It applied to the guy who shorted Internet stocks in 1997, and the guy who was buying gold in 1990. It has been a pretty good fit for anyone buying into the wind-farm revolution. Eventually, these ideas all worked. But the market stayed wrong much longer than the early investors stayed solvent. Today, these words of wisdom are calling to the dozens of high-profile professionals who have recently called for a major market top. The pile of bodies is getting higher.

It began with Mark Mobius, the famous guru from the Templeton Funds, who this past August claimed the stock market was going to drop 30 percent before year’s end. With five weeks left, the market would have to fall 45 percent from current levels to fulfill his prediction. Not totally out of the question, but extremely unlikely.

September was full of dire predictions about stock-market gloom. Bloomberg had a guru a day all month long calling for a precipitous pullback. In late October, as the market was falling, Jim Cramer of CNBC stated unequivocally that the highs for 2009 were in.

As all of this was going on, I kept reminding you that, despite the ongoing threat of a 5-percent to 10-percent pullback at any time, the market should more or less keep trending higher into the end of the year. Well, on Nov. 16, the market hit a new high for 2009. And my thoughts are the same as they have been for months: The market should keep trending higher despite the very real possibility of a correction of up to 10 percent at any time.

All these experts are guilty of letting their egos get in the way of proper fact-based analysis. After the battering they all took in 2008, they want a shot at glory. And in their mind, nothing claims glory like calling a huge stock-market top. Oh, well.

Today, there is another long-running, persistent move that has been claiming bodies of famous players. This call is not yet as popular as the market-top call. The U.S. dollar has been in virtual free fall all year, and several prominent people are saying the bottom has been reached. I wouldn’t touch either side of this debate with a 10-foot pole.

The dollar hit a fresh low Nov. 16, while gold and stocks hit fresh highs. These moves are correlated, but that could come to an end without following the logical outcome. There are notable periods in the last 35 years where the dollar has rebounded after a long downtrend and gold has kept moving higher.

I understand the bullish argument. Our dollar is falling because of the massive amount of newly borrowed and printed money, but currencies are a relative game. All the major countries in the world are doing the same thing. Is the world really going to turn to socialized Europe for currency safety? But, like I said earlier, the market can stay wrong much longer than you can stay solvent.

At some point, this new toy on Wall Street, the dollar-carry trade, will unwind, and the dollar will bounce and gold should fall. It may happen next week, or things could go on like this for several months. I am sensing at least one action idea out of this situation. If gold does take a hit sometime in the next few months, to somewhere around $1,000 an ounce or a little below, it might finally be time to add to positions.•

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Hauke is the CEO of Samex Capital Advisors, a locally based money manager. His column appears every other week. Views expressed here are the writer’s. Hauke can be reached at 203-3365 or at keenan@samexcapital.com.

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